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Defense deals continue to flow for Jacobs Engineering Group Inc (JEC - Analyst Report). Earlier this week, the company signed a new contract to provide systems engineering and technical assistance (SETA) support to the U.S. Army's Program Executive Office (PEO - ETF report) Soldiers.
The terms of the contract specified that Jacobs will provide effective mission critical support for the PEO Soldiers who develop, acquire, field and sustain integrated and affordable state-of-the-art equipment to improve Soldier dominance in Army operations. The contract carries a one-year base and two one-year extension options and is estimated to bring in $157 million.
As part of the company's core clientele, the U.S. Army and other federal governments have been commanding a significant share for a long time. Such clients have generated substantial revenue for the company, thus ensuring sustainability.
Abiding by such optimism, Robert Norfleet, the Vice President of Jacobs Engineering Group, marked this collaboration as a significant opportunity to strengthen the long-standing liaison with the U.S Army and expects to continue the same.
Prior to this, the last U.S defense task order came to Jacobs was from the Secretary of Air Force Financial Management, Ohio, in late February. Jacobs was selected to provide IT support for Air Force financial applications. Elsewhere, in mid-February Jacobs was chosen as a technical and operations support provider for the Marine Corps Logistics Command in U.S.
Such consistent contract wins from U.S defense services reflect client confidence for Jacobs. Although sustainable, such long-standing associations are not problem-free. Prolonged federal budget constraints or unforeseen termination of government funded projects may drastically reduce order flow, marring profitability.
Fluor Corporation (FLR - Analyst Report) and Foster Wheeler AG (FWLT - Analyst Report), sharing an identically competitive platform like Jacobs, may also face similar challenges. However, Jacobs' recent mix shift toward higher-margin private projects looks convincing enough to guard the company well against such unlikely state of affairs.
We currently have a long-term Neutral recommendation on the stock. Also, the company maintains a Zacks #3 Rank, which implies a short-term (1-3 months) Hold rating.
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