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Why Jacobs (JEC) is a Must-Add Stock to Your Portfolio?

Zacks

We believe adding Jacobs Engineering Group Inc. JEC stock to your portfolio will be a promising investment move at the moment. Over the last six months, this Zacks Rank #2 (Buy) stock has rallied 8.3%, outperforming the 1.4% loss incurred by the industry.



You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here..

Why to Grab the Stock?

Top-Line Prospects: Rise in U.S. housing starts & building permits, impressive labor market scenario, modest inflation and Trump’s long-awaited $1.5-trillion infrastructure plan have been spurring demand for Jacob’s state-of-the-art construction and engineering services for the past few quarters.



The above graph show that the company’s top-line performance has improved since second-quarter fiscal 2017.

Jacobs believes superior customer relationships and sturdier demand for newfangled technology solutions will bolster its Aerospace & Technology segment’s revenues in the quarters ahead. Increase investments made in global transportation, water infrastructure and resilience is expected to improve revenues of the Buildings & Infrastructure segment. Solid life science, semiconductor, mining & minerals businesses are expected to stoke top-line growth of the company’s Industrial segment. Moreover, amid energy market downturn, the company expects that efforts made to strengthen its downstream chemicals and refining business will improve revenues of the Petroleum & Chemicals segment.

The stock’s projected sales growth rates for fiscals 2018 (ending September 2018) and 2019 (ending September 2019) are pegged at 41.8% and 12.3%, respectively.

Contract Based Growth: Jacobs believes new contract wins will continue to boost its competency in the near term. In the last few months, the company has secured several contracts from renowned institutions and public-sector agencies like the Sasol Group Technology, Chevron Corporation CVX, the U.S. Army, Equate Petrochemical Company, Exxon Mobil Corporation XOM, Sellafield Ltd, Saudi Aramco, Sipchem Lubrizol, Kraton Corporation KRA and Codelco. Such potential deals are anticipated to escalate the company's revenues and profit-making prospects in the upcoming quarters.

Buyout Story: Jacobs has been reinforcing its business on the back of diligent business acquisitions. In sync with this, last August, the company acquired a prominent data analytics and cyber security company — Blue Canopy — in a bid to expand its federal civilian information technology services’ business. Furthermore, the company successfully acquired (December 2017) CH2M HILL Companies Ltd. (‘CH2M’) for $2.85 billion. Jacobs expects to accrue cost synergies worth nearly $150 million in fiscal 2018, on the back of this buyout. Notably, the acquisition is also anticipated to boost the company’s earnings by 30-35 cents per share in fiscal 2018.

Profitability: Jacobs’ adjusted earnings in first-quarter fiscal 2018 (ended December 2017) surpassed the Zacks Consensus Estimate by 14.9% and came in 13.2% higher than the year-ago tally.

Apart from sturdier revenues and benefits from the CH2M buyout, Jacobs believes increased focus over high-value businesses, efficient project execution and wider margins will drive its bottom-line performance in the near term.

Moreover, the company stated that reduced corporate tax rates (due to implementation of Tax Cuts and Jobs Act in December 2017) will help bolster its earnings in the upcoming fiscals. Notably, the company predicts that the U.S. tax reform will boost its earnings by nearly 30 cents per share in fiscal 2018.

Planned Business Restructuring: Planned Business Restructuring: In fiscal 2015, Jacobs restructured its operations into four lines of businesses, in order to improve the company's overall operational efficacy. The program was finally accomplished in fiscal 2017 (ended September 2017).

Moreover, on Dec 18, 2017, Jacobs announced that from the second half of fiscal 2018, it will report results in three global lines of businesses — Aerospace, Technology, Environmental and Nuclear (ATEN), Energy, Chemicals and Resources (ECR), and Buildings, Infrastructure and Advanced Facilities (BIAF).

The company planned this restructuring in a bid to integrate CH2M within its business.

Upward Estimate Revisions: Over the past 60 days, the Zacks Consensus Estimate for Jacobs moved 11.1% upward to $4.00 and 16% to $4.72 for fiscals 2018 and 2019, respectively.

The positive earnings estimate revision indicates upbeat sentiments and substantiates the Zacks Rank #2 for this stock.

The stock’s projected EPS growth rates for fiscals 2018 and 2019 are pegged at 23.5% and 17.8%, respectively.

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