Jacobs Upgraded to Neutral – Analyst Blog

We upgrade our recommendation on Jacobs Engineering Group Inc. (JEC) from “Underperform” to “Neutral” based on the belief that a number of new contracts and strict cost control measures will help it perform well in future.

 

Jacobs’ continual emphasis on cost control is an important component of the business model. Cost control initiatives may help the company deliver superior technical, professional and construction services safely, efficiently and within the cost and time parameters of clients.

 

Jacobs’ diversification across markets, geographies and services will help generate growth in the present sluggish environment. The company plans to expand into emerging markets like India, China and the Middle East. Emerging markets are expected to perform much better than the developed markets in the coming years.

 

Another reason for the company to sustain in these difficult market conditions is its liquidity position. The company has maintained a high level of liquidity, with a net cash position of $240.4 million at the end of the first quarter of fiscal 2010.

 

However, there are certain reasons that hinder a further upgrade of the stock. The company’s industry is very cyclical and is subject to significant fluctuations due to a wide variety of uncontrollable factors, including economic conditions and changes in client spending, particularly during periods of economic uncertainty.

 

The company also operates in a highly competitive environment. Its immediate competitors are Fluor Corp. (FLR), Foster Wheeler AG (FWLT), KBR Inc. (KBR), Technip and Lockheed Martin Corporation (LMT).