Jacobs Engineering Group Inc.
) announced that the joint venture (JV) between
Jacobs-Serco-Lockheed Martin has concluded AWE Pricing
Arrangements, involving the contract to manage and operate Atomic
Weapons Establishment (AWE) plc in the United Kingdom. The
new pricing arrangements will be effective from April 1, 2013
through March 31, 2018.
Jacobs, which has a one-third share in AWE Management Limited
(AWE ML), is a joint venture formed in 2000 between the company and
Lockheed Martin and Serco. The joint venture is aimed at managing
AWE plc on behalf of the UK Ministry of Defence (MOD).
The conclusion of recent negotiations toward pricing
arrangements carries a total value to AWE ML of around 1 billion
GBP ($1.59 billion) per year. However, approximately 40% of
the above value has been planned to be invested in capital
The infrastructure market is improving worldwide. In such a
scenario, Jacobs is well poised to take advantage of such strong
secular growth trends supported by its low-cost position relative
to its competitors, such as
Foster Wheeler AG
Although sustainable, such long-standing associations with
government clients are not problem free. Prolonged federal budget
constraints or unforeseen termination of government funded projects
may drastically reduce order flow, marring profitability.
However, Jacobs' recent mix shift toward higher-margin private
projects looks convincing enough to guard the company well against
such unlikely state of affairs. Also, with controlled expenses and
on-time project execution, Jacobs is expected to retain its
long-term relationships with its core clientele.
We currently have a long-term Neutral recommendation on the
stock. Moreover, the company maintains a Zacks #3 Rank, which
translates into a short-term (1-3 months) Hold rating. The Zacks
Consensus EPS Estimate for the third quarter is 76 cents.
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