Jacobs Engineering Group Inc. (JEC) has received the extension of its consultancy contract from Kent County Council in the U.K. until 2013. Jacobs will provide services to the County Council’s Highway division.
Recently, Jacobs also won two engineering contracts, one each from Hydrogen Energy California, LLC and Scania to provide water treatment and zero liquid discharge facility in Bakersfield, California and to erect a new climatic wind tunnel in Sodertalje, Sweden, respectively.
Jacobs, one of the leading providers of various professional and technical services, is dependant on contracts. Hence, the continuous inflow of contracts will not only help Jacobs in improving its backlog, but will also help in boosting both its top-line and bottom-line results.
Backlog has been continuously shrinking since the beginning of fiscal 2010. During the first quarter of fiscal 2010, backlog reduced to $14.9 billion from $16.0 billion in the previous quarter. In the second quarter, it reduced to $14.7 billion, and finally in the third quarter to $13.5 billion.
Moreover, Jacobs’ plans to expand into the emerging markets such as India, China and the Middle East should prove profitable because these growth regions are expected to perform much better than the developed markets in the coming years. Moreover, Jacobs’ ongoing acquisition strategy and its diversification across markets, geographical regions and services will help it emerge stronger.
However, Jacobs’ business is cyclical in nature due to a wide variety of uncontrollable factors, including economic conditions and changes in client spending, particularly during periods of economic uncertainty. However, the market is recovering gradually, which is expected to push Jacobs ahead in the future.
Thus, we reiterate our long-term Neutral recommendation on the stock, which currently retains its Zacks #3 Rank (short-term “Hold rating).
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