Jacobs Upholds Winning Legacy

Zacks Equity Research
March 1, 2012

Contract wins and project awards have always reinforced positional advantages for the engineering and construction professionals like Jacobs Engineering Group Inc. (JEC), in a global infrastructure platform. Continuous inflow of contracts as well as the alliance/acquisition strategies continued to prove beneficial for the top-line results of these ventures, including that of Jacobs.

The recent Design Supplier Contract Alliance with Sellafield and strategic EPCM service contract from the Chinese Chemical group, may be foreseen as an added benefit targeted to sustain the legacy of win-win advantage for both Jacobs and its clients, going forward.

Let us elaborate the contracts and their scope of work in the following segments:

The Sellafield Award

Jacobs recently announced that its joint venture with AMEC, Assystem and Mott MacDonald (:AXIOM) has been awarded a contract that will establish a design services alliance (:DSA) with Sellafield Limited for its operation in West Cumbria, United Kingdom. 

The alliance will be providing Sellafield with access to a full range of multi-disciplined engineering services – civil and structural, mechanical, control and instrumentation and process – for the development and refurbishment of the new and existing facilities and decommissioning at the Sellafield site. The contract term has been estimated to operate for up to 15 years. Value of the contract has not been disclosed yet.

According to the contract, AXIOM will be providing front-end engineering design support for all new facilities as well as refurbishment and upgrading of existing facilities and systems to the production operations and infrastructure directorates at Sellafield. This work is being delivered by the integrated team involving local suppliers in collaboration with Sellafield's staff leading to an effective supply chain.

Solvay Industrial Site

In another story, Jacobs announced winning of a contract from ‘Solvay’ for a major specialty polymers production plant to be built at Solvay's industrial site in Changshu, located in the province of Jiangsu, China.

Headquartered in Brussels, Solvay is an international chemical group offering a broad range of products that improve the quality of life and performance of its customers in markets such as consumer goods, construction, automotive, energy, water and environment, and electronics. Solvay has planned to invest approximately $160 million into the specialty polymers production plant, targeted to produce SOLEF® PVDF, TECNOFLON® FKM, and its essential VF2 monomer.

Jacobs will be executing the engineering, procurement and construction management (:EPCM) services contract from its Shanghai operations in China. The plant, scheduled to be operational in the first quarter of 2014, is expected to significantly boost Solvay's global production capacity for these specialty polymers. The contract value is estimated to be approximately US$9 million.

About Jacobs

Jacobs Engineering Group, one of the world's largest and most diverse providers of technical, professional, and construction services, serves a variety of industrial, commercial and government clients across a global network.

The company’s growing international exposure and diversification across markets, geographies and services have given it a competitive edge over its peers, such as Fluor Corporation (FLR) and Foster Wheeler AG (FWLT).

Our Take

We believe that the company’s long-term relationships with its core clientele, on-time project execution as well asfocus on smaller capital projects for streamlining thecapital budget will generate satisfactory results in the coming quarters.  The company’s strategic contract wins and acquisitions across geographies and services look promising, as well. Further, we anticipate the company’s steady backlog and better labor utilization to accelerate growth and multiple expansions, even under the threat of a competitive infrastructure environment and government spending cuts.

We currently hold a Neutral recommendation on the stock. Jacobs has a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating.

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