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Jacobs to Grow on Contracts & CH2M Buy, Energy Business Ails

On Nov 23, we issued an updated research report on Jacobs Engineering Group Inc. JEC, a premium technical services company,

In the last three months, shares of this Zacks Rank #3 (Hold) stock yielded a return of 24.7%, outperforming 17.8% growth recorded by the industry.

Factors Driving Growth

Trump's initiatives to boost infrastructure spending in the United States and recovering economic conditions of the major industrial-end market in China are anticipated to boost demand for Jacobs' engineering and construction management services.

The company reported better-than-expected fourth-quarter fiscal 2017 (ended Sep 29, 2017) results, primarily on the back of robust performance delivered by the Buildings & Infrastructure segment. It believes that new investments made in sectors like social infrastructure, water and transportation will continue to strengthen the segment's performance. Further, increased transportation spending of the government authorities of certain countries like Australia and New Zealand are likely to drive the segment's revenue growth. In fact, the company believes that improved Aerospace & Technology as well as Industrial line of businesses will aid in bolstering revenues in the quarters ahead.

Moreover, the company is steadily enhancing business and brand status on the back of organic growth initiatives. In the last few months, Jacobs secured several contracts from renowned institutions and public-sector agencies like the Sasol Group Technology, the U.S. Army and Equate Petrochemical Company. Such lucrative deals are anticipated to escalate the revenues in the upcoming quarters.

Moreover, the company is reinforcing business on the back of meaningful business acquisitions. In sync with this, the company acquired a prominent data analytics and cyber security company, Blue Canopy, in August 2017. This buyout will aid the company in expanding its federal civilian information technology services' business in the quarters ahead. Additionally, the company has inked a deal to acquire CH2M HILL Companies Ltd. for $2.85 billion in the same month. Through this buyout, Jacobs anticipates to add cost synergies worth $150 million going forward. Further, this acquisition is expected to make Jacobs a $15-billion global solutions' provider in the market. The deal is anticipated to be closed by mid-December.

However, we observed that Zacks Consensus Estimate for this stock has remained unchanged for fiscal 2018 in the last 60 days, reflecting neutral sentiments.

Amid its efforts to shift business focus to the downstream market, Jacobs’ Petroleum & Chemicals segment currently remains challenged by volatile energy market conditions. In the fourth quarter, top-line results of this segment dipped 2.6% year over year. The company anticipates further downside in oil prices which is likely to continue to hurt upstream and midstream businesses, going forward.

Moreover, we perceive that low-entry barriers in engineering, architectural, consulting and designing market segments have escalated threats of market rivalry for Jacobs. Poor competency in the long run might diminish the market share and profitability of the company from such business fragments.

Moreover, the maintenance and construction sites of Jacobs are subject to certain risks related to safety issues. Any adversities at these sites might generate severe financial losses for the company. Also, business expansion in foreign nations has exposed the company to risks arising from unfavorable foreign currency movements and geopolitical issues.

Stocks to Consider

Some better-ranked stocks within the industry are listed below:

Fenner PLC FNERF carries a Zacks Rank #2 (Buy). The company’s EPS is projected to grow by 10% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

IMI PLC IMIAY carries a Zacks Rank #2. The company’s EPS is projected to grow by 10% in the next three to five years.

KBR, Inc. KBR carries a Zacks Rank #2. The company’s EPS is projected to grow by 9% in the next three to five years.

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Jacobs Engineering Group Inc. (JEC): Free Stock Analysis Report
 
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