Jacobs Engineering Group Inc. (JEC) has won a contract from IOT Infrastructure & Energy Services Limited (IOT) (formerly Indian Oiltanking). Although, the contract value has not been disclosed, the transaction cost is estimated to be $60 million.
As per the agreements, Jacobs will supply engineering services to the Indian Oil Corporation Ltd.’s (IOCL) Delayed Coker Unit (DCU) project, which is going to be erected at IOCL’s Guwahati refinery, India.
Recently, Jacobs also decided to help the Washington State Department of Transportation (WSDOT) with its construction services to improve its high-tech traffic management system known as Smarter Highways along with the northbound I-5 in south Seattle.
Excluding the ones above, Jacobs has received a total of 9 contracts in August 2010. This continuous inflow of contracts will definitely pull Jacobs out of the current sluggish environment.
New contract wins are also expected to 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 to $13.5 billion.
Another positive factor for the company is its 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 it to generate growth. The company 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 to emerge stronger.
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 short-term Hold rating, equivalent to a Zacks #3 Rank.
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