Jacobs Engineering Group Inc. JEC has agreed to offload its Energy, Chemicals and Resources (“ECR”) business unit to Australia’s WorleyParsons Ltd., as it intends to focus more on “highest-margin growth businesses”.
The deal, which is expected to close in the first half of calendar 2019, is valued at $3.3 billion. Jacobs will receive $2.6 billion in cash and around $700 million worth of shares that equals to about 11% stake in WorleyParsons.
Portfolio Reshaping to Drive Growth
Jacobs is the largest service provider to the NASA space program and has been focusing on high-value lines of business that includes Aerospace, Technology, Environmental & Nuclear (“ATEN”) and Buildings, Infrastructure & Advanced Facilities (“BIAF”).
In words of Jacobs’ Chairman and CEO Steve Demetriou, “this transaction marks an inflection point in our portfolio transformation focused on more consistent, higher-margin growth as a leader solving the world's critical challenges."
Meanwhile, the structure of the transaction will help Jacobs to benefit from the near-term upside created by the ECR and WorleyParsons combination, along with oil and gas market recovery. The company intends to use some of the proceeds to pay down debt, while maintaining its capital flexibility to consider M&A opportunities.
Jacobs has been reinforcing business on the back of meaningful business acquisitions. In sync with this, the company acquired a prominent data analytics and cyber security company in August 2017, namely Blue Canopy, in a bid to expand the federal civilian information technology services business. Furthermore, it has successfully acquired (in December 2017) CH2M HILL Companies Ltd. (CH2M) for approximately $2.9 billion. Through the CH2M buyout, Jacobs foresees to accrue cost synergies worth nearly $150 million in fiscal 2018. Notably, the acquisition is expected to boost the company’s earnings in fiscal 2018 and beyond.
Year to date, Jacobs’ shares have gained 9.6% against 14.7% fall of the industry it belongs to. The price performance is backed by an impressive earnings surprise history. The company, currently carrying a Zacks Rank #3 (Hold), surpassed earnings estimates in the trailing four quarters, resulting in an average of 15.4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Not only its results topped analysts’ expectations in the last reported quarter, Jacobs registered stellar growth on a year-over-year basis. The company’s total revenues grew 47.1% in the first nine months of fiscal 2018.
Jacobs, which shares space in the industry with Fluor Corporation FLR, KBR, Inc. KBR and Quanta Services, Inc. PWR, is benefiting from major government customers across the Department of Defense, Department of Energy, intelligence community and NASA. Within its commercial markets, the 5G wireless build-out continues to provide a robust opportunity. Importantly, the company’s ATEN business is executing well and is positioned to deliver double digit year-over-year increase in profits in fiscal 2018, with continued strong growth in 2019 as well. These positives are likely to continue driving Jacobs’ bottom line in the upcoming quarters.
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