Jacobs Wins Contract From Enfield To Support $7.75B Program

In a bid to deliver exceptional infrastructure in Upper Edmonton, Jacobs Engineering Group Inc. (NYSE:J) has received a technical design and planning advisory services contract from Enfield Council.

Per the deal, Jacobs will offer multidisciplinary design and consultancy, including environmental, land quality and water catchment management services, at Meridian Water — a $7.75 billion, 20-year regeneration program in Upper Edmonton, which is located in the London Borough of Enfield, North London.

Also, in an effort to support integrated client/project team working and bring together a diverse range of datasets to enable testing of the master plan as it evolves in the coming years, Jacobs' People & Places Solutions (P&PS) will create a collaborative digital working environment.

In order to support Enfield Council and Meridian Water, Jacobs' team of planners, architects, designers and other specialists will associate with Avison Young, East, Knight Architects, Sound Diplomacy and Waugh Thistleton. Also, its partnership with Simetrica — a global leader in the field of social value measurement — will support Enfield's pursuit of inclusive growth opportunities.

Exceptional Project Execution Strategy to Support Growth

Jacobs’ P&PS business — which accounted for almost 65% of total revenues in first-quarter fiscal 2020 — serves clients of broad sectors like water, transportation, building and semiconductors.

On Mar 5, the company reported that the P&PS segment secured a framework contract from the Swedish Transport Administration (Trafikverket) to provide strategic consultancy services for the new high-speed railway lines planned between Stockholm, Gothenburg and Malmö in Sweden.

Efficient project execution has been primarily driving Jacobs’ performance over the last few quarters. The company’s ongoing contract wins are a testimony to the fact. Backlog at the end of first-quarter fiscal 2020 grew 11% from the year-ago period to $22.7 billion.

Long-Term Prospects & Impressive Fundamentals Bode Well

The P&PS segment has been a major growth driver of its revenues. Recently, the company reported strong results in the fiscal first quarter on the back of solid segmental performance, acquisitions and cost synergies.

Over the next three years (through 2021), management aims a 125-175 basis points (bps) expansion in adjusted operating margins. The company anticipates a 100-150 bps increase in Critical Mission Solutions or CMS margins and 110-140 bps growth in PPS margin, supported by the elimination of ECR.

It projects 3-5% net organic revenue growth, with P&PS leading the way with 4-6% top-line compound annual growth rate (CAGR) and CMS with 23% CAGR. The top-line growth is expected to be driven by recurring revenues that roughly occupy two-thirds of Jacobs’ total revenues, in turn reducing overall risks of market volatility.

Our Take

Jacobs’ shares have outperformed the industry so far this year. The outperformance is likely to continue in the near term, buoyed by strong backlog, inorganic moves, its transformed portfolio, and increased focus on infrastructure, aerospace, cybersecurity and technical building projects.

Although excessive contract pricing pressure, poor competency and extreme competition are concerns for the company, its contract winning spree and solid view are encouraging.

Zacks Rank

Jacobs — which shares space with AECOM (NYSE:ACM) , KBR, Inc. (NYSE:KBR) and Fluor Corporation (NYSE:FLR) in the same industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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