Jacobs Engineering Group Inc. (JEC) has won a contract from Valley Metro Rail, Inc. (METRO) for the Central Mesa Light Rail extension project worth $12.5 million. For the initial two years, Jacobs will be assisting with its engineering services, which will be followed by the construction of the project. The entire project is expected to be completed by 2016.
Jacobs received a total of 12 contracts in the month of 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 the 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 also 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 drive 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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