Jacobs Engineering Group Inc. (JEC) has won engineering contracts, one each from Hydrogen Energy California, LLC and Scania. According to the agreement, the former will be provided with water treatment and zero liquid discharge facility in Bakersfield, Calif.
 
Scania, one of the world’s leading manufacturers of heavy transport, will be offered services to erect a new climatic wind tunnel in Sodertalje, Sweden.
 
The management did not disclose the contract value, but we believe that the continuous inflow 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 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 such as 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).

 
JACOBS ENGIN GR (JEC): Free Stock Analysis Report
 
Zacks Investment Research