Are things turning around for Pasadena-based Jacobs Engineering Group Inc.?
Several Wall Street analysts seem to think so. In the last 10 weeks, three have upgraded their recommendations for the engineering and construction giant, with the most recent upgrade coming last week from Goldman Sachs Group Inc.
After several quarters of weak earnings reports, the analysts say Jacobs has greater prospects for contract awards in a wide array of domestic markets: pulp and paper production, chemical plants and tech-related work for the defense industry. Analysts also point to improving prospects for Canadian oil sands facilities, and in some Middle East oil and gas markets.
With that growth potential, some analysts say Jacobs represents somewhat of a bargain for investors.
Goldman Sachs upgraded Jacobs from “sell” to “neutral.” Earlier last quarter, Gabelli & Co. and Sterne Agee both raised their recommendations from “neutral” to “buy.”
“We are removing Jacobs from the ‘sell’ list because award prospects are picking up across key markets, the balance sheet is fueling merger and acquisition activity and valuation is no longer as expensive,” said Goldman Sachs research analyst Joe Ritchie in his upgrade report.
The analysts were reacting in part to an announcement in late January that the company was raising its earnings estimates for 2011 by about 4 percent to a range of $2.40 to $2.85 per share. That compares with about $1.90 per share for the past 12 months.
“Overall, we’re seeing growth – not robust growth, but good, solid opportunities for growth as we go through 2011 and into 2012,” Jacobs Chief Financial Officer John Prosser said at a recent investment conference in Miami.
Chief Executive Craig Martin said the company had weathered a difficult year of lower-than-expected earnings as the full impact of the financial crisis hit. For the last fiscal year ended Sept. 30, Jacobs’ revenue fell 14 percent to $9.9 billion and net income fell 39 percent to $246 million.
Besides a slowdown in obtaining contracts, Jacobs also faced the cancellation or scaling back of major projects in the pipeline.
In recent months, though, contract awards have picked up. Just last week, Jacobs received a contract from the U.S. Air Force Research Laboratory at Edwards Air Force Base to provide research operations and support services; the contract has a potential value of $87 million over three years.
Other recent contracts include a technical and project management services contract at a Nama Chemicals Group plant in Saudi Arabia and an engineering design contract at Saudi Aramco Lubricating Oil Refining Co.’s refinery in Yanbu, Saudi Arabia. The dollar amounts weren’t specified. The company also won a $23 million, five-year contract with the U.S. Air Force Research Laboratory at Wright-Patterson Air Force Base in Dayton, Ohio, for technology and software development.
Jacobs also made seven purchases last year, including the construction unit of Stockholm, Sweden-based Aker Solutions ASA in a December deal that Jacobs valued at about $675 million.
Martin told analysts the company is looking to make several more deals this year. Analysts noted Jacobs has nearly $900 million in unrestricted cash available.
Some uncertainty in the larger economy could affect the company. Public-sector infrastructure projects in the United States are at risk to due budget pressures. Political turmoil in the Middle East could also limit future contracts in that region. And, as Goldman Sachs’ Ritchie noted, some of Jacob’s backlog contracts are still being canceled.
