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Jacobs' Shares Up 54% Over a Year: What's Driving the Stock?

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Jacobs Engineering Group Inc.’s (J - Free Report) shares have rallied nearly 53.5% in the past year. The figure is more than double of the Zacks Engineering - R and D Services industry’s growth of approximately 20.6%. The outperformance was backed by its focus on high-value businesses and efficient project execution.

The company’s solid earnings surprise history might have supported the strong price movement. It surpassed earnings estimates in 10 of the trailing 12 quarters.

However, higher transaction-related costs, stiff industry rivalry, and persistent headwinds in global energy and commodity markets remain concerns for this Zacks Rank #3 (Hold) company, which shares space with Quanta Services, Inc. PWR, KBR, Inc. KBR and Altair Engineering Inc. ALTR in the same industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

What’s Working in Favor of the Stock?

Strong Backlog: Efficient project execution has been one of the main characteristics that is driving Jacobs’ performance since the last few quarters. The company’s ongoing contract wins are a testimony to this fact. Backlog at the end of fiscal 2019 was $22.57 billion, increasing 13.1% year over year. Critical Mission Solutions or CMS backlog continued to grow in fiscal 2019, increasing 18.7% year over year to $8.46 billion. Moreover, People & Places Solutions or PPS backlog was up 10% year over year to $14.11 billion. The backlog growth can be attributed to capitalizing on CH2M and KeyW revenue synergies.

Strategic Moves: Fiscal 2019 was a transformational year for Jacobs. It completed the divestiture of the Energy, Chemicals and Resources or ECR business in April, acquisition of KeyW in June, and announced the buyout of Wood's nuclear business in August 2019. These moves were in sync with its strategic focus on transitioning from engineering and construction to a global technology-forward solutions company.

Meanwhile, Jacobs is reinforcing business on the back of meaningful business acquisitions. In fiscal 2019, Jacobs acquired KeyW, thereby enhancing the higher-margin CMS business through intelligence solutions capabilities in high-security clearance areas. KeyW — which provides engineering/technology solutions in intelligence, cyber and related national security concerned areas for the U.S. government — will compliment Jacobs' CMS segment.

On Aug 20, 2019, Jacobs announced that it has entered into an agreement to buy John Wood Group's Nuclear business for an enterprise value of approximately $300 million on a debt-free and cash-free basis. This transaction is expected to close by the end of second-quarter fiscal 2020.

Strong Performance: Jacobs exhibited strong performance in fiscal 2019. Adjusted earnings from continuing operations came in at $5.05 per share, reflecting an increase of 30% year over year. Revenues were $12.74 billion, increasing 20.4% from a year ago. Adjusted operating income increased 17% and adjusted operating margin expanded 50 basis points (bps) from a year ago. Adjusted EBITDA of $981.3 million increased 21.6% from a year ago. Overall, the company has a robust pipeline of opportunities across all businesses. It has started to realize synergies from CH2M and KeyW buyouts.

Overall, the company's focus on providing strong technical expertise to mission-critical sectors serving the U.S. military warfighter and intelligence agencies bodes well for growth and profitability. Also, its focus on high growth and higher-margin sectors like telecom 5G, data analytics, cybersecurity and C5ISR provides significant opportunities for growth.

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