Color on Jacobs Engineering's $241M Naval Weapons Contract

Jun.23.10 | About: Jacobs Engineering (JEC)

Jacobs Engineering Group Inc. (NYSE:JEC) won a five-year, $241 million contract from Combat Environment Simulation (CES), a division of the Naval Air Warfare Center for Weapons.

The contract aims at providing CES with equipment or software to enable analyses, development, fabrication, installation, integration and testing of the comprehensive Live Virtual Constructive (LVC) network-centric warfare training. The contract is expected to close by May 2015.

Jacobs is one of the world's largest and most diverse providers of technical, professional and construction services. Jacobs’ diversification across markets and services helps generate growth in the present sluggish environment.

The company plans to expand into emerging markets like India, China and the Middle East. The emerging markets are expected to outperform the developed markets in the coming years.

Jacobs’ track record of contract wins together with a healthy liquidity position of $743 million at the end of the second quarter of fiscal 2010 will help it to sustain in the present economic environment.

However, the very cyclical nature of the company and its excessive dependence on a few large customers is risky. In 2009, 20.3% of its revenues were generated from agencies of the U.S. federal government.

Jacobs is also subject to significant fluctuations stemming from a wide variety of uncontrollable factors, including economic conditions and changes in client spending, particularly during periods of economic uncertainty. Thus, we reiterate our Neutral recommendation on the stock.