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Jacobs Engineering (JEC) Buys KeyW, Fortifies ATN Business

Zacks Equity Research

Jacobs Engineering Group Inc. JEC has completed the acquisition of KEYW Holding Corp., thereby emerging as a leader in high-value Government Services. This transaction, which is valued at $815 million, resulted in KeyW becoming a wholly-owned indirect subsidiary of Jacobs.

Why KeyW Buyout is Important for Jacobs?

KeyW is an intelligence, cyber, mission and IT analytics company operating in intelligence and national security spaces. This KeyW acquisition is in line with Jacobs' Aerospace, Technology and Nuclear (“ATN”) transformational strategy of delivering innovative and unique mission-oriented solutions for key technical and high consequence government priorities.

The deal has expanded Jacobs’ presence in advanced engineering and technology solutions in key growth areas of intelligence, cyber, and counterterrorism. The integration diversifies Jacobs' end-to-end solutions for clients through KeyW's Intelligence, Surveillance and Reconnaissance (“ISR”), differentiated cyber technology, along with mission-critical IT and analytics capabilities.

The addition further boosted Jacobs' portfolio by adding intellectual property-driven technology with unique proprietary C5ISR solutions.

Jacobs’ Inorganic Drive Bodes Well

Jacobs is reinforcing business on the back of meaningful business acquisitions. The company’s acquisition of CH2M HILL Companies Ltd. (CH2M) in December 2017 strengthened the global water business. The CH2M buyout fortified businesses across the industrial sector. Jacobs achieved a run rate of more than 90% of expected CH2M synergies in the fiscal second quarter and remains optimistic to achieve $175 million synergies as it exits fiscal 2019.

The stock has outperformed its industry year to date. The company’s shares have gained 33.1% compared with 18.4% growth of its industry in the said period. The price performance is backed by an impressive earnings surprise history. The company surpassed earnings estimates in seven of the trailing eight quarters.

In a nutshell, strong backlog ($20.7 billion as of Mar 29, 2019), the KeyW acquisition, transformed portfolio, as well as increased focus on infrastructure, aerospace, cybersecurity and technical building projects bode well for Jacobs’ growth and profitability.

Zacks Rank & Key Picks

Jacobs currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the Zacks Construction sector include AECOM ACM, Quanta Services, Inc. PWR and Altair Engineering Inc. ALTR. While Altair Engineering currently sports a Zacks Rank #1, the other two stocks carry a Zacks Rank #2 (Buy).

AECOM has a solid earnings surprise history, having surpassed the consensus mark in all the trailing four quarters, with the average being 6.2%.

Quanta Services and Altair Engineering’s earnings for the current year are expected to increase 29.5% and 53.7%, respectively.

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