Jacobs Engineering (JEC) - Business as Usual

We don't own any of these global engineering stocks at this moment, because effectively the market has chased us out of the names. We closed out of Jacobs Engineering in early September in the mid $60s; within 6 week it had fallen below $30. It is really quite sad to see the stocks performance when you consider how the best of breed are still performing "business as usual". The problem with owning these now is you have "reality" 1 day a quarter (when they report earnings) then rumors and innuendos of lost contracts, cancelled business, blah blah blah every other day of the quarter. As tempting as it is to buy these now, it won't take long for the bad economic news to come back to the forefront and calls of global slowdown to punish these type of stocks. But they were so oversold they had to bounce at some point. But unless your timing is perfect it is near impossible to make money on the long side - even with today's tremendous move and the past week's great action the stock is only back to where it was 2 weeks ago. If you have a 5 year time horizon these prices should be a highway robbery but for the next 6-9 months the whole complex is still iffy based on perception more than reality. Earnings were solid as always - revenue up 41%, earnings up 36%, backlog continues to grow (bears will say all these contracts can be cancelled at any second, and everything gets cancelled sub $60 oil anyhow) despite a dispute with a large Canadian customer...

Fluor (FLR) and Jacobs Engineering (JEC) continue to appear to be best of breed although some of the other names are even cheaper - KBR (KBR) for instance has been trading below cash for parts of the past two weeks - quite pathetic. For traders, a stock like JEC could potentialy trade back to its 50 day moving average of $49 but I'd consider it, in the current market, a short from there as "worries" will be "resurface" about the global economy soon enough. But that's still a 20% upside trade with a tight stop below $38.50 for those who are jumping in and out of stocks on a very short term basis. I'd rather buy it when I can hold onto it for a few quarters in a row without experiencing the -15% down days we get the pleasure of experiencing in this group on a now almost weekly basis.

• For the fourth quarter of fiscal 2008, Jacobs reported net earnings of $114.4 million, or $0.92 per diluted share, on revenues of $3.2 billion. This compares to net earnings of $83.9 million, or $0.68 per diluted share, on revenues of $2.3 billion for the fourth quarter of fiscal 2007.
• Jacobs reported today record net earnings of $420.7 million, or $3.38 per diluted share, on revenues of $11.3 billion for its fiscal year ended September 30, 2008. This compares to net earnings of $287.1 million, or $2.35 per diluted share, on revenues of $8.5 billion for fiscal 2007.
• Jacobs also announced backlog totaling $16.7 billion at September 30, 2008, including a technical professional services component of $8.1 billion. This compares to total backlog and technical professional services backlog of $13.6 billion and $6.2 billion, respectively, at September 30, 2007.

CEO Comments

• CEO Craig L. Martin stated, "In spite of significant challenges created by the recent hurricanes in the Gulf Coast, our team produced excellent results in the fourth quarter and for the year.
  
• Our one disappointment this quarter came from a breakdown in our relationship with a customer on a project in the Canadian oil sands. Because of the breakdown, the customer is transferring future phases of the project to other contractors. As a result, we removed $2.36 billion from our backlog for this project, which would have been performed over the next three fiscal years. Of this, $2.27 billion was in field services, substantially in the form of 'pass-thru' revenues. Our Canadian business remains healthy and we are working diligently to rebuild our relationship with this customer."
• "Our sales in the fourth quarter remained strong. Our business is solid and prospect quality remains high. As we look ahead, FY09 looks like another good year."

2009 Guidance

• Commenting on the Company's earnings outlook for fiscal 2009, Jacobs Chief Financial Officer John W. Prosser, Jr. stated, "The outlook for 2009 is good and should track inline with our long-term goals. Our initial guidance for 2009 earnings per share is a range of $3.55 to $4.05." (analysts at $3.99)

No positions