Jacobs Engineering Group Inc. (J - Free Report) has been selected for four Lots on Network Rail's prestigious Design Services Framework (DSF), in order to provide multi-disciplinary technical and professional services in the U.K.
The contract — whose work is slated to commence immediately — has a five-year term, with further possibility of extension. Together with Costain and SYSTRA, Jacobs will deliver a broad spectrum of professional services, including geotechnical, civil and structures capability. Also, it will draw on niche capability from a supply chain of 45 firms that will include 25 small and medium-sized enterprises.
Jacobs is already supporting two projects of Network Rail, namely The Western Rail Link to Heathrow and Transpennine Route Upgrade. The recent work will allow Jacobs to continue providing technology-driven solutions in areas like asset management, digital twin, strategic consultancy, and major project and program delivery.
The company’s People & Places Solutions or P&PS business has been working with Network Rail and its predecessors over the past 40 years.
Jacobs’ Long-Term Prospects & Impressive Fundamentals to Drive Growth
Jacobs’ P&PS business — which accounted for almost 65% of total revenues in first-quarter fiscal 2020 — serves clients of broad sectors like water, transportation, building and semiconductors. The segment has been a major growth driver of its revenues. Recently, the company reported strong results in the fiscal first quarter on the back of solid segmental performance, acquisitions and cost synergies.
Over the next three years (through 2021), management aims a 125-175 basis points (bps) expansion in adjusted operating margins. The company anticipates a 100-150 bps increase in Critical Mission Solutions or CMS margins and 110-140 bps growth in PPS margin, supported by the elimination of ECR.
It projects 3-5% net organic revenue growth, with P&PS leading the way with 4-6% top-line CAGR and CMS with 23% CAGR. The top-line growth is expected to be driven by recurring revenues that roughly occupy two-thirds of Jacobs’ total revenues, in turn reducing overall risks of market volatility.
Jacobs’ shares have rallied almost 11% year to date, significantly outperforming its industry’s 3.8% growth. The outperformance is likely to continue in the near term, buoyed by strong backlog, inorganic moves, its transformed portfolio, and increased focus on infrastructure, aerospace, cybersecurity and technical building projects.
Although excessive contract pricing pressure, poor competency and extreme competition are concerns for the company, its contract winning spree and solid view are encouraging.
Jacobs — which shares space with AECOM (ACM - Free Report) , KBR, Inc. (KBR - Free Report) and Fluor Corporation (FLR - Free Report) in the same industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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