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Jacobs Engineering Building Global Profits


Jacobs Engineering's footprint is broad enough in scale to weather just about any storm.

"Once I thought I saw you in a crowded, hazy bar
Dancing on the light from star to star
Far across the moonbeam I know that's who you are
I saw your brown eyes turning once to fire"

- Like A Hurricane (Neil Young)

Yes, Neil Young again: What can I tell you? It is amazing how upon hearing any song by Neil Young I am instantly brought back to 8th grade, hanging out on Friday nights at the long wall in front of the high school. The subject matter would go from the Yankees to the Rangers, Knicks or Giants depending upon the time of year, but the music in the backdrop included a lot of Neil Young & Crazyhorse.

Moving back to today, fortunately for all of us, the prognosticators of weather proved to be mortal once again. The named storms ranging in the teens and the 6-9 Category 3 or higher storms predicted have either yet to form or never made landfall in areas of significant economic importance (with apologies to anyone that was adversely affected by a hurricane this year).

Of course that is all good news. And better news for some companies that are "weather proof." Jacobs Engineering (JEC) falls into that category.

According to its website, "Jacobs Engineering Group Inc. is one of the world's largest and most diverse providers of professional technical services." Its primary markets include industries that can be impacted by any act of nature: Buildings, Environmental Programs, Oil and Gas, Infrastructure and Refining. What separates JEC from some of its competitors is with over 60 years in the industry, Jacobs Engineering attracts and retains clients by providing superior customer value. To that end, over 90% of its work is repeat business from loyal clients.

A lot has been made of the build-out in China for the upcoming Olympic Games in 2008. What nobody is talking about (yet) is the London 2012 Olympics will also create huge demand for transportation and environmental improvements.

This will play right into the hands of JEC as it will draw upon its experience from the Olympics in Athens and Atlanta. To that end, JEC is already delivering two important transport imperatives for the 2012 Olympics.

The company is due to report its 4Q earnings tomorrow before the bell. The "Street" is looking for $0.65 EPS on $2.23 bln in revenues. I think that earnings will be very strong, but for me the number to look out for is its backlog. On July 23rd, when JEC reported its 3Q earnings it announced its backlog increased $1.6 bln or 17% year-over-year to $11 bln. I am looking for that backlog to increase to close to $13 bln.

There are a couple of things to keep in mind, however. Starting the year around $38.50, JEC has more than doubled this year. Along those same lines, at 39 times trailing and 29.50 times forward earnings, JEC is not exactly "cheap" on a valuation basis. That being said, the global infrastructure story is very much in play. The woes at Citigroup (C) are major, but they have little impact on infrastructure programs in India, Ireland and Poland. With a global network that includes more than 160 offices in over 20 countries, JEC's footprint is broad enough in scale to weather just about any storm.

The stock is rich and has had a monster move, but keep an eye on earnings tomorrow and consider including JEC on the radar screen for your portfolio.
No positions in stocks mentioned.

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