Jacobs Boosts Competency On CH2M Buyout, Reaffirms FY18 View

Jacobs Engineering Group Inc. (NYSE:JEC) recently acquired CH2M HILL Companies, Ltd. (‘CH2M’) for roughly $2.85 billion, paid through stock and cash transaction. The deal is in sync with Jacobs’ profitable growth strategy and will likely make the company a $15-billion global solutions provider.

Over the past month, shares of this Zacks Rank #3 (Hold) company yielded a return of 11.5%, outperforming 5.2% growth recorded by the industry.

Inside the Headlines

The acquisition was originally announced on Aug 2, when Jacobs created an Integration Management Office (‘IMO’) for methodically planning the integration process of the CH2M buyout. The IMO has shaped rigorous protocols and processes to drive growth synergies, and realize cost savings appropriately from the deal.

Jacobs believes the CH2M acquisition will strengthen its global water business over the long run. In addition to the above, the company stated that the CH2M buyout will fortify its businesses across the industrial sector. It will also enhance the company’s chemicals, energy and resources portfolio in the near future.

Moreover, Jacobs’ explicit experience in government nuclear decommissioning projects, when combined with CH2M’s distinguished expertise in big scale nuclear and environmental remediation programs, will likely give rise to significant business expansion prospects. Also, CH2M’s environmental know-how complements Jacobs’ commercial bond with the U.S. federal government.

Jacobs anticipates accruing an annualized savings of roughly $150 million from the CH2M integration by the end of the second year of the deal’s closure. The company also reaffirmed its previously stated earnings per share outlook for fiscal 2018 to the $3.55-$3.95 per share range. By the end of the first year following the deal completion, the company anticipates the acquired assets to boost its adjusted cash earnings per share by 25% and earnings per share by 15%. However, the company does not anticipate to secure any material benefit from the buyout in its first-quarter fiscal 2018 results.

The company also increased the strength of its board of directors to 11 after former CH2M director — Barry Williams — joined its team.

Moreover, from the second half of fiscal 2018, Jacobs will report its results through three global lines of businesses —Aerospace, Technology, Environmental and Nuclear (‘ATEN’), Energy, Chemicals and Resources (‘ECR’), and Buildings, Infrastructure and Advanced Facilities (‘BIAF’). This move will help streamline the combined company’s operating model.

Stocks to Consider

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

IMI (LON:IMI) PLC (OTC:IMIAY) currently carries a Zacks Rank of 2 (Buy). The company’s earnings per share (EPS) are projected to be up 10% over the next three to five years. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

KBR, Inc. (NYSE:KBR) holds a Zacks Rank of 2. The company’s EPS is projected to be up 9% in the next three to five years.

ROTORK PLC (OTC:RTOXY) also carries a Zacks Rank of 2. The company’s EPS is projected to be up 6.5% during the same time frame.

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