Jacobs Engineering Group Inc. (JEC) recently won a five-year $50 million contract from Millennium Challenge Corporation to supply professional services.
This was the first contract for Jacobs in the month of October. In September, the company won a number of contracts including a contract from Huntsman Corporation, Hydrogen Energy California, LLC, Scania, one-year contract from the United States Army TACOM Life Cycle Management Command and an extension of its consultancy contract from Kent County Council in the U.K.
We believe that the continuous flow of contracts is a long-term positive for the company. Firstly, it will help in improving backlog, which 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.
Secondly, it might add significantly to Jacobs’ robust liquidity position with a net cash position of $847.6 million at the end of the third quarter of fiscal 2010. Jacobs’ diversification across markets, geographical regions and services will also help generate growth.
Jacobs’ plans to expand into the emerging markets of India, China and the Middle East, which are expected to perform much better than the developed markets in the coming years. Moreover, Jacobs’ ongoing acquisition strategy 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. Currently, the stock retains its Zacks #3 Rank (short-term Hold rating).
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