We issued an updated research report on Jacobs Engineering Group Inc. (JEC) on May 7, 2014. The company reported improved year-over-year results for the second quarter of 2014 (ended Mar 28, 2014). Adjusted earnings per share increased marginally to 82 cents from 80 cents in the year-ago quarter while revenues recorded a 12% year-over-year hike to roughly $3.18 billion. The enhanced results were primarily due to contribution from acquisitions.
Jacobs has been actively pursuing acquisitions in order to expand its businesses. A strong balance sheet with significant cash position helps it to reach the target. Recently, the company has inked an agreement to acquire Federal Network Systems for an undisclosed value. The acquisition is expected to consummate in the summer of 2014. The company has also acquired many other companies including Eagleton Engineering and FMHC Corporation. These acquisitions are expected to boost the company’s earnings, going forward.
Jacobs has been extending its contracts pipeline, resulting in healthy organic growth. In the recent past, the company won contracts in different parts of the world. Jacobs has expertise in several sectors including oil and gas, petrochemical, mining, IT services and power.
Another important factor about the company is its strong relationship-based model, which leads to repeat business. On an average, around 65% of its business is obtained through long-term relationship with customers. This is reflected in the repeat business of about 96% conducted in the fiscal second quarter of 2014.
However, in the reported quarter, the company was negatively impacted by several project related issues in Europe. This led to a downward revision of the estimates for the whole year. The company presently anticipates earnings per share to be in the range of $3.15–$3.55 as against $3.35–$3.90 range expected earlier.
Moreover, Jacobs’ overseas operations expose it to foreign currency fluctuation risks. Also, the company’s dependence on a handful of suppliers is likely to hamper revenues in the occasion of any one of them facing trouble.
With a market capitalization of $7.4 billion, Jacobs currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks worth considering in the industry include Pernix Group Inc (PRXG), Willdan Group, Inc. (WLDN) and Toll Brothers Inc. (TOL). While Pernix Group and Willdan Group sport a Zacks Rank #1 (Strong Buy), Toll Brothers holds a Zacks Rank #2 (Buy).