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STOCK SPOTLIGHT
The Pasadena company, one of the largest of its kind in the U.S., keeps growing by snappingup other engineering, architecture and construction firms.
By Stuart Pfeifer
December 30, 2013
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Jacobs Engineering is building on its success withacquisitions
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Jacobs Engineering Group Inc., which started as a one-man
consulting shop in 1947, has grown into one of the largest
and most respected U.S. engineering firms.
The Pasadena construction consulting company handles
engineering, architecture and construction projects for
governments and businesses worldwide.
It has clients in oil and gas, chemicals, aerospace, defense,
mining, pharmaceuticals, power, paper, technology, food and
other industries.
Founder Joseph J. Jacobs, the son of Lebanese parents, built
the company into a $1-billion business by the time he retired
in 1992 at age 76, pushing it into the lucrative environmental
services business.
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Jacobs Engineering at a glance
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Ja cobs En g in eer in g Gr ou p In c. h a s becom e on e of U.S. en g in eer in g in du str y 's la r g est fir m s. (Ch er y l A .
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At the time he stepped down, he told the Los Angeles Times
that he credited much of his success to an ego that he
conceded was "large, inflated, overwhelming — choose your
own adjective." He died in 2004.
The company's headquarters are on Lake Avenue in
Pasadena, but it operates 200 satellite offices throughout
North America and in South America, Europe, the Middle
East, India, Australia, Africa and Asia. Jacobs has more than
48,000 employees.
The latest
Jacobs announced this month that it had completed its $1.2-
billion purchase of Australian professional services firm
Sinclair Knight Merz, the latest in a series of acquisitions.
The transaction gives Jacobs a company with $1.2 billion in
annual revenue.
The acquisition would also help Jacobs gain access to
geographic regions it had not penetrated and should increase
its annual revenue about 10%, Michael S. Dudas, an analyst
with Sterne, Agee & Leach Inc., said in a research note.
The geographical holes that Sinclair would fill are in South America, Britain, Asia and Australia,
Dudas said.
"The combination of Jacobs and SKM further diversifies our geographic offerings and the end-
markets we serve," Jacobs Chief Executive Craig L. Martin said in a statement announcing the
completion of the deal. "We look forward to integrating the two companies and see many excellent
opportunities ahead to support our clients, develop our people and grow our business."
Accomplishments
One of the company's most significant environmental contracts made it the primary subcontractor
in a $2.2-billion cleanup of the Fernald, Ohio, nuclear weapons plant, the largest federal
environmental cleanup of its kind.
That helped position the company to benefit from increased business generated by the
environmental policies of then President Clinton.
By the end of its latest fiscal year, Sept. 27, the company was more than 10 times larger than its
founder had left it.
Jacobs reported a record profit of $423 million for its fiscal year on revenue of $11.8 billion. That
was 12% more than the $379 million it earned in its previous fiscal year, when sales reached $10.9
billion.
"We grew organically by 10%, and both our business and our opportunities continue to grow,"
Martin said last month.
"We're discovering new and innovative ways to add sustainable value to our clients' projects around
the world," he said. "Our backlog is good, and we're positive about 2014."
Challenges
Jacobs' business is tied to the health of the global economy and commodity prices, which factor
significantly into its profitability.
"An economic slowdown and falling commodity prices could reduce cash flows and capital
expenditure plans for Jacobs' customer base," analyst Dudas said.
"Subcontractor performance and craft labor availability can impact overall project execution,
especially for larger complex projects in remote or unpredictable areas," he said.
Analyst views
Ten analysts recommend buying the stock, and 12 suggest holding it. None say investors should sell
it. They estimate the stock will be selling for $65.14 a share in a year, 5.5% higher than Friday's close
of $61.73.
"Jacobs remains a high-quality equity that reflects a long-term defendable business model, a solid
management team, a conservative and strong financial profile," Dudas said.
He said he was impressed by Jacobs' cash position of about $850 million, which could drive
acquisition opportunities. He set a one-year price target of $70 for the company's stock.
"A handful of smaller acquisitions during 2013 and some larger opportunities should enhance
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growth during 2014," Dudas said.
John B. Rogers, an analyst with D.A. Davidson & Co., said his firm recently reduced its estimated
near-term earnings for Jacobs but remains bullish about the company's future.
"Based on backlog/order growth, improving work prospects and potential for acquisitions, we
continue to expect substantial growth over the next several years," Rogers said in research
commentary.
Rogers also has a $70 price target for the stock.
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