Jacobs Engineering Group Inc. (JEC) won a construction contract from Bonneville Power Administration (BPA), a federal agency in Portland that markets wholesale electricity and transmission services to public and private utilities in the Pacific Northwest and direct service industries.
Although the contact value was not disclosed, the total cost is expected to be as high as $6 billion. Per the agreement, Jacobs will provide on-site construction administration and inspection services for BPA’s transmission lines, substations and ancillary communications projects.
Jacobs has also won a four-year contract from the Homes and Communities Agency (HCA), a national housing and regeneration agency in England. The company will provide services to the multi-disciplinary framework panel.
Jacobs has been continuously winning contracts, which will be accretive in the long-term. Firstly, it will help improve 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 it was $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. Thus, the stock retains its Zacks #4 Rank (short-term “Sell” rating).
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