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Jacobs to Deliver Project Services, Eyes Growth of BIAF Unit

Zacks Equity Research

Jacobs Engineering Group Inc. JEC recently announced that it has been appointed by the Australian Department of Foreign Affairs and Trade (“DFAT”) to provide project management and contract administration services for the construction of a new Australian Embassy in Washington, D.C.

The new chancery will be constructed after demolishing the existing embassy building, and will be located at the 16th street of Massachusetts Avenue and is one kilometer away from the White House.

Designed by Australia-based Bates Smart, the new building design is more environmentally sensitive, given efficient facade and a green roof with an extensive photovoltaic array and natural light.

Meanwhile, the project will be delivered by Jacobs' U.S.-based construction management team, supported by Australian-based project direction and design review teams.

The recent work marks the first major project with DFAT in Jacobs’ history. This will offer further opportunities for the company’s Buildings, Infrastructure and Advanced Facilities (“BIAF”) business. Notably, in fiscal second-quarter, revenues in the segment increased 4.4% year over year.

Solid Project Execution Bodes Well

Efficient project execution has been driving Jacobs ‘performance over the last few quarters. This is evident from the company’s fiscal second-quarter backlog. The company’s backlog at the end of the quarter was $20.7 billion, increasing 7.5% year over year, primarily attributable to CH2M revenue synergies.

Higher-margin Aerospace, Technology and Nuclear (ATN) and BIAF line of businesses continue to see a robust pipeline of government and infrastructure spending programs. Particularly, backlog in the BIAF segment (accounting for 65.7% of fiscal second-quarter revenues) grew 11.1% year over year.

Notably, management has outlined new margin targets for the next three years (through 2021), including Jacobs’ aim of 125-175 basis points (bps) expansion in adjusted operating margins, 100-150 bps increase in ATN margins and 110-140 bps growth in BIAF margin. Moreover, the company is projecting 3-5% net organic revenue growth, with BIAF leading the way with 4-6% top-line CAGR and ATN with 2-3% CAGR.

Share Price Performance

Jacobs’ shares have outperformed its industry in the past year. The stock has gained 36.6% compared with 19.4% growth of its industry in the said period. Jacobs’ price performance is backed by an impressive earnings surprise history. The company has surpassed the Zacks Consensus Estimate in five of the trailing six quarters.

Zacks Rank & Key Picks

Jacobs currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space include AECOM ACM, KBR, Inc. KBR and Quanta Services, Inc. PWR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AECOM and KBR surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average of 6.2% and 8.9%, respectively.

Quanta Services’ 2019 earnings are expected to grow 29.5%.

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