Jacobs (J) Receives $37-Million Contract To Support DoD HSD

Jacobs Engineering Group Inc. (NYSE:J) has received a contract from the Maryland Procurement Office to provide microelectronics engineering support to the Department of Defense Hardware Solutions Division (“HSD”).

Per the contract, Jacobs will support the DoD HSD via Critical Mission Solutions or CMS line of businesses with unconventional packaging, printed circuit board prototyping, technology development, custom device engineering, and product validation and reliability offerings.

The contract has a value of $37 million that includes $7-million base award and $30 million in options over a five-year period of performance, including a 12-month base period and four 12-month option periods.

Jacobs also received a contract extension for a large development and systems integration contract with a government customer. This two-year extension through fiscal 2021 includes a funding ceiling increase of more than $112 million. This will bring the total ceiling value of the contract to just more than $500 million over the life of the contract.

In the words of Jacobs’ CMS Vice President of Mission IT and Engineering Janet Schoenfeld, “Jacobs will provide flexible technical solutions to HSD in support of many different technology applications to be used throughout the nation.” Schoenfeld also added, "This contract is significant to defense mission solutions, where Jacobs has extensive knowledge, and will shape the next generation of innovative solutions for the DoD.”

Jacobs will leverage capabilities from the recently acquired KeyW Corporation to perform work for DoD HSD.

Accretive Acquisitions Bode Well for Jacobs

In fiscal 2019, Jacobs acquired KeyW, thereby enhancing the higher-margin CMS business through intelligence solutions capabilities in high-security clearance areas. KeyW — which provides engineering/technology solutions in intelligence, cyber and related national security concerned areas for the U.S. government — will compliment Jacobs' CMS segment. In the fiscal first quarter, adjusted EBITDA and earnings from the KeyW buyout grew 25% and 35%, respectively, on a pro-forma basis.

Importantly, the company’s CMS business — representing 35.2% of first-quarter fiscal 2020 total revenues — is executing well and is positioned to deliver double-digit increase in profits on a year-over-year basis in fiscal 2020. The company’s focus on long-term mission-critical enterprise contracts bodes well. It has a robust pipeline of more than $30 billion through 2020. These positives are likely to continue driving Jacobs’ bottom line in the upcoming quarters.

Price Performance

Jacobs — which shares space with AECOM (NYSE:ACM) , KBR, Inc. (NYSE:KBR) and Fluor Corporation (NYSE:FLR) in the Zacks Engineering - R and D Services industry — has gained 26.3% in the past year against the industry’s 14.8% decline. The upside can be primarily attributed to robust segmental performances, contract wins and strong backlog. This can also be attributed to an impressive earnings surprise history. Notably, this Zacks Rank #3 (Hold) company has a trailing four-quarter positive earnings surprise of 2.8%, on average. Its earnings surpassed estimates in three of the last four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, Jacob’s solid project execution strategy and strategic focus on transitioning from engineering and construction to global technology-forward solutions bode well.

The company’s ongoing contract wins are a testimony to the fact. Backlog at the end of fiscal 2019 was $22.57 billion, increasing 13.1% year over year. Again in first-quarter fiscal 2020, backlog grew 11% from the year-ago period to $22.7 billion. CMS backlog grew 18.4% year over year to $8.5 billion in the fiscal first quarter.

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