Jacobs Engineering Group Inc. J has won an architecture and engineering design contract from the U.S. Army Corps of Engineers for the Korea Air Operations and Intelligence Center (“KAOIC”).
KAOIC — part of the U.S. Military Construction and Host Nation Funding Program — will oversee air operations and distributed common ground station weapon systems. Notably, this project will help the U.S. Forces Korea and the U.S. and Korea Combined Forces Command in defense of the Korean peninsula.
Notably, this 1 million-gross-square-foot facility is expected to incur approximately $605 million of construction costs. Meanwhile, the new KAOIC facility is currently functioning at Osan Air Base in South Korea.
Jacobs’ Contract-Winning Spree Bodes Well
Jacobs’ business has been gaining strength on the back of solid contract wins. On Feb 26, 2020, the company’s People & Places Solutions (P&PS) segment was selected by the U.S. Army Corps of Engineers Mobile District to deliver architect and engineering services for the latter’s Environmental Quality Program in South Atlantic Division.
Again, on Feb 12, 2020, the company was selected for four Lots on Network Rail's prestigious Design Services Framework (DSF) to provide multi-disciplinary technical and professional services in the U.K.
Jacobs’ Long-Term Prospects to Drive Growth
Jacobs’ shares have rallied 13% year to date against the industry’s 7.1% decline. The outperformance is likely to continue in the near term, buoyed by a strong backlog, inorganic moves, a transformed portfolio and increased focus on infrastructure, aerospace, cybersecurity and technical building projects.
Recently, the company reported strong results for the fiscal first quarter on the back of solid segmental performance, acquisitions and cost synergies. Notably, the P&PS business has been a major growth driver, accounting for more than 55% of total revenues in first-quarter fiscal 2020.
Over the next three years (through 2021), management expects an expansion of 125-175 basis points (bps) in adjusted operating margins. The company anticipates an increase of 100-150 bps in Critical Mission Solutions or CMS margins and 110-140 bps in PPS margin, supported by the elimination of ECR.
It projects 3-5% net organic revenue growth, with P&PS leading with 4-6% top-line CAGR and CMS with 2-3% CAGR. The top line is expected to be driven by recurring revenues that roughly account for two-third of Jacobs’ total revenues, in turn reducing overall risks of market volatility.
Although excessive contract pricing pressure, poor competency and extreme competition are significant concerns for the company, its contract-winning spree and solid view are encouraging.
Jacobs, which shares space with AECOM ACM, KBR, Inc. KBR and Fluor Corporation FLR, 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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