Not Quite the End of Days for Infrastructure: a Look at Jacob's Great Quarter

There has been a lot of fright recently that its the end of days for infrastructure stocks. [Barron's Out With Negative Piece of Foster Wheeler (FWLT)] Myself, I've argued this is one of the last secular bull markets and with the combo of three customers flush with cash even in a worldwide slowdown (a) Middle East countries full of petro dollars - whether oil is $65 or $105 (b) Asian export countries - whether GDP is 12% or 6% and (c) the US government, who has its own printing presses and looks antsy to run them on full blast - its an election year after all.

Could I be wrong? Certainly. But at least you'll know my thinking along the way.

We have another excellent company, Jacobs Engineering (JEC) reporting an excellent quarter, with an excellent backlog, with excellent pricing power. Exactly the type of company that should sell off 30-40% right along with financials, retailers, and restaurants... that makes sense.

• Engineering and construction services firm Jacobs Engineering Group Inc. said late Monday fiscal first-quarter earnings rose 61 percent.
• Net income in the quarter ended Dec. 31 climbed to $98.4 million, or 79 cents per share, from $61.3 million, or 51 cents per share, in the year-ago period. Excluding a gain of $5.4 million, or 4 cents per share, from the sale of an investment, earnings rose 52 percent to $93 million, or 75 cents per share.
• Analysts, whose estimates typically exclude items, expected profit of 70 cents per share, according to Thomson Financial.
• Sales rose 25 percent to $2.5 billion from $2 billion last year, surpassing Wall Street expectations for $2.44 billion.
• Backlog increased to $15 billion from $10.4 million a year ago. (50% increase)

Oh yeh, and they increased guidance for next year

• Engineering and construction services firm Jacobs Engineering Group Inc. on Monday raised its fiscal 2008 earnings target, citing positive business trends.
• The company now expects to earn $2.95 per share to $3.25 per share in the year ending Sept. 30, including a gain of 4 cents per share booked in the first quarter. In November, the company told Wall Street to expect profit between $2.70 and $3.10 per share.
• "Industry trends are generally positive and our new business prospects remain good," President and Chief Executive Craig Martin said. "We expect FY 2008 to be another successful year."

I really don't know more to say. If you can't buy companies that beat estimates every quarter, are growing 25% on top line, and 50% on bottom line (increasing margins anyone?), raise guidance.... etc etc. What can you buy? I'll just continue to acquire these stocks and wait for the market to realize there is still life out there. Backlog is up 50% over last year, and now is 1.5 years worth of business.

Of course people will say well the end is near, this can't continue. Just like they said it last quarter, or two quarters ago, or three quarters ago. Just like crude can't continue past $40, or gold past $600. After all "it's cyclical". And they'll say it next quarter, or the quarter after. Meanwhile go read that piece about the Middle East and see what is really going on out there in the globe. And yes crude dropped to mid $80s today... cancellations must be coming any second now. Etc and Etc and Etc. (insert sky is falling scenario here)

Disclosure: Long Jacobs Engineering in fund; no personal position