Jacobs Engineering Group Inc. (JEC) has won a contract from Huntsman Corporation for expansion of its polyether amines manufacturing facility in Jurong Island, Singapore .
 
For expansion, Jacobs will be supplying its engineering, procurement, construction management and turnaround management services including design and installation of the third reactors through its office in Singapore.
 
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’ has been continuously expanding into the emerging markets of Asia, which also should prove profitable because these growth regions are expected to perform much better than the developed markets in the coming years. Moreover, Jacobs’ ongoing acquisition strategy and its diversification across markets, geographical regions and services 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).
 
 
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