Jacobs Engineering Group Inc. (J - Free Report) has been selected by Radioactive Waste Management Ltd. (RWM), an affiliate of the U.K. Government's Nuclear Decommissioning Authority, to study the release of radioactivity from irradiated graphite tested from reactor cores at the U.K.'s nuclear power stations. The contract has an initial term of two years but may be extended by an additional two years, subject to experimental program results.
With this contract, RWM has commissioned Jacobs to measure and characterize releases of the radioactive isotope carbon-14 and then compare it with releases from irradiated graphite in earlier reactor types, including the U.K.'s first generation of Magnox civil nuclear power stations. This research will help RWM to analyze graphite behavior and the options for graphite waste management in the future.
According to Jacobs Critical Mission Solutions (CMS) Senior Vice President Clive White, "Our Technology and Innovation Centre at Birchwood Park, Warrington, is applying this graphite knowledge to work through options for safe and timely characterization, retrieval, treatment and storage solutions to meet the growing global decommissioning market."
Critical Mission Solutions: A Strong Growth Driver
The CMS unit, accounting for 36.3% of total revenues, serves global automotive, aerospace, telecommunications, defense, and nuclear clients, as well as the U.S. intelligence community.
During the fiscal second quarter, Jacobs’ CMS business performed well, with total backlog amounting to $9.1 billion, which reflects 5% year-over-year growth on a pro-forma basis. Although the ongoing crisis due to the coronavirus pandemic will have a short-term impact on the CMS business, Jacobs believes that the underlying structural demand for services remains strong. Hence, as it approaches the end of fiscal 2020, it expects to ramp up the business, and come up with growth in fiscal 2021 and beyond.
Meanwhile, CMS International accounts for about 10% of the business, which covers primarily Tier-1 nuclear decommissioning, and operations and maintenance services in the U.K. and Europe. Jacobs’ international business also provides services to the U.K. Ministry of Defence in support of defence requirements including Continuous At-Sea Deterrence program, and various sustainment programs for air and land defense in the U.K. and Australia.
Jacobs expects the CMS International business to be moderately impacted by COVID-19 in the second half of fiscal 2020, with approximately 70% of the impact coming from field work interruptions and 30% from consulting delays. Nonetheless, it expects to return to normalized run rate as it exits the fiscal year.
Long-Term Prospects Bode Well
Jacobs’ shares have outperformed the industry so far this year. 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.
Despite the short-term challenges associated with COVID-19, Jacobs’ long-term outlook for the business remains intact. 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 CMS margins and 110-140 bps growth in People & Places Solutions or P&PS margin, supported by the elimination of ECR.
It projects 3-5% net organic revenue growth, with P&PS contributing 4-6% compound annual growth rate (CAGR) and CMS’ CAGR being 23%. 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 — 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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