Back to top

Image: Bigstock

Jacobs (J) to Spin-Off & Merge Government Services Arm With Amentum

Read MoreHide Full Article

Jacobs Solutions Inc. (J - Free Report) has strategically decided to spin off and merge its Critical Mission Solutions (“CMS”) and Cyber & Intelligence government services businesses with Amentum, a global engineering and technology solutions provider.

This move, following Jacobs' earlier announcement of separating its CMS business, is part of a comprehensive review aimed at positioning both entities for enhanced success. The result is a new, publicly-traded player in the government services sector with an impressive $13 billion in annual revenues.

Shares of Jacobs gained 1.2% during the trading session and 3.7% in the after-hour trading session on Nov 20.

Merger Synergies

The combination encompasses Jacobs' CMS, the Cyber & Intelligence segments of its Divergent Solutions business, and Amentum, creating a robust government technology solutions business. Jacobs will retain its innovative data solutions and digital technologies business, aligning with its core focus on delivering digitally enabled critical infrastructure solutions.

This strategic separation streamlines Jacobs' business portfolio, transforming it into a more focused, higher-margin company closely aligned with key global megatrends. The company aims to address complex critical infrastructure and sustainability challenges with leading positions in water and environment, energy transition, transportation, and advanced manufacturing sectors.

The transaction, expected to close in the second half of fiscal year 2024, brings significant financial strength. With approximately $50 billion in combined backlog, $13 billion in combined revenues, and a projected $1.1 billion in combined adjusted EBITDA for 2024, the new entity is poised for substantial growth. The move also promises a lucrative future for shareholders, with Jacobs and its shareholders owning 58.5%-63% of the combined company's common shares upon completion.

John Heller, Amentum's current CEO, will lead the combined company, while Jacobs' executive chair, Steve Demetriou, will become the executive chair. The collaboration is expected to deliver extensive expertise in critical government areas such as energy, space exploration, intelligence and analytics, and digital modernization.

Jacobs is set to receive $1 billion in cash proceeds at the close, subject to customary adjustments, solidifying its strategic and financial position in the evolving government services landscape.

Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

In the past year, shares of Jacobs have gained 10.9% compared with the industry’s 28.6% rise. Although the company has underperformed in the industry, infrastructure modernization, the shift toward sustainable energy, national security imperatives and the potential for a super-cycle in global supply-chain investments are expected to boost its performance in the upcoming periods.

Zacks Rank & Stocks to Consider

Currently, Jacobs carries a Zacks Rank #4 (Sell).

Some better-ranked stocks from the Zacks Business Services sector are TriNet Group, Inc. (TNET - Free Report) , DocuSign, Inc. (DOCU - Free Report) and SPX Technologies, Inc. (SPXC - Free Report) .

TriNet currently sports a Zacks Rank #1 (Strong Buy). TNET delivered a four-quarter average earnings surprise of 77.4%. The company’s shares have risen 58.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for TNET’s 2023 sales indicates a decline of 2.7%, but earnings per share (EPS) suggests a rise of 4%, respectively, from the prior-year reported figures.

DocuSign currently carries a Zacks Rank of 2 (Buy). DOCU has a four-quarter average earnings surprise of 27.1%. The stock has declined 0.2% in the past year.

The Zacks Consensus Estimate for DOCU’s 2024 sales and EPS indicates growth of 8.6% and 29.1%, respectively, from the prior-year reported figures.

SPX Technologies currently carries a Zacks Rank of 2. SPXC has a trailing four-quarter earnings surprise of 28% on average. Shares of the company have gained 23.8% in the past year.

The Zacks Consensus Estimate for SPXC’s fiscal 2023 sales and EPS indicates a rise of 20% and 38.7%, respectively, from the year-ago reported levels.

Published in