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In a Short Period of Time, Jacobs Engineering Has Transformed Itself

Jacobs Engineering is one of the premier government contractors, and a company bringing strong momentum into 2020.

Source: Jacobs Engineering Integrated Annual Report

Jacobs Engineering Group, Inc. is one of the premier government contractors, and a company bringing strong momentum into 2020. In the last 365 days, Jacobs’s share price has increased by more than 50% to over $96 per share, more than doubling the performance of the S&P 500.

This impressive year began when the leadership team presented a new growth strategy during the company’s Investor Day in February 2019. On that day, investors were told Jacobs would look to pursue only higher margin, less cyclical markets.

The company’s transformation has so far been a success. Chairman and CEO Steve Demetriou summed up Jacobs’ new portfolio strategy as, “aligned to major secular growth trends such as environmental resiliency, IT/OT convergence and national security.”

Jacobs changed its ticker symbol to just “J” in late 2019 to signify its transformation into a company whose businesses have now been distilled into two distinct segments:

  • Critical Mission Solutions – this segment was formerly known as “aerospace, technology and nuclear;”
  • People, Places and Solutions – formerly known as “Buildings, Infrastructure and Advanced Facilities.”

Those who are familiar with the company may notice the absence of the Energy, Chemical and Resources segment (ECR). In April of last year, Jacobs sold the segment to WorleyParsons Limited for $3.3 billion. The segment dated back to the founding of Jacobs, more than 70 years ago. But the sale positioned Demetriou and his team squarely on higher-margin opportunities like cybersecurity and digital demands. Moreover, the ECR segment was performing poorly, and shedding the business enabled Jacobs to separate itself from the fluctuations in the oil market.

The grand success of the Company’s Critical Mission Solutions segment

Critical Mission Solutions saw 22% revenue growth for full-year 2019 to $4.5 billion. The majority of this growth can be pinned on Jacobs’ continued work with NASA – the company is the largest provider of professional technology services to the agency – and the Artemis Moon Program, which includes crucial roles at five NASA centers that support this program. In addition, this segment was at the forefront of reducing waste at NASA.

Furthermore, Jacobs’ Critical Mission Solutions segment serves the military and intelligence agencies. Recently, the company won a multi-billion-dollar IDIQ contract (indefinite delivery/indefinite quantity) with the Defense Department and a recompete contract with the National Science Foundation.

“Critical Mission Solutions is successfully expanding further into higher growth and higher-margin sectors like telecom 5G, data analytics, cybersecurity, C5ISR,” said Mr. Demetriou in the company Q4 earnings call. “Our telecom business grew by approximately 50% in fiscal year 2019, benefiting from the shift to 5G small cell sites as cities deploy intelligent infrastructure.”

Image: Jacobs Engineering Form 10-K for the fiscal year ended Sept. 27, 2019

Jacobs acquisition of KeyW, finalized in June 2019, strengthened the Critical Mission segment by folding in a company with complementary solutions for the high-profit margin government contract service business. Additionally, KeyW also brought its own client relationships and IP, specifically unique C5ISR technology (Command, Control, Computers, Communications, Cyber, Intelligence, Surveillance and Reconnaissance).

Jacobs also acquired John Wood Group’s Nuclear business for $300 million, which added nuclear energy expertise and the capability to offer nuclear lifecycle services to a portfolio that, at the time, already booked $1.2 billion in complex, nuclear clean-up projects. All told, the segment’s backlog stands at $8.5 billion at the end of the fiscal year, up $400 million from last year.

Looking like a strong 2020

The People, Places and Solutions segment also delivered substantial returns, adding revenue of $8.2 billion, up 9% over fiscal 2018. The acquisition of CHM2, completed in December 2017, is now winning Jacobs renewable energy contracts and digital connectivity solutions across sectors. This segment also has a healthy backlog of $14 billion, and is growing 10% year-over-year.

In the Q4 call, Jacobs offered 2020 EBITDA guidance of $1.05 billion to $1.15 billion and adjusted EPS guidance of $5.30 to $5.80. If the company meets the midpoint of those expectations it would represent a 17% year-over-year increase.

Our pipeline is increasing year-over-year with larger, higher margin opportunities and we are strategically leveraging our balance sheet, investing in ourselves through timely share buybacks, as well as disciplined and targeted M&A activities in strong growth sectors.

– Mr. Demetriou

Jacobs will host its fiscal Q1 2020 earnings call on February 4th at 11am EST.


Equities Contributor: Stephen L. Kanaval

Source: Equities News

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