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Jacobs' ATN Unit Wins DOD's Cyber Training Academy Contract

Zacks Equity Research

Jacobs Engineering Group Inc. JEC has received a contract from the U.S. GSA Federal Systems Integration and Management Center (“FEDSIM”) to support the Department of Defense Cyber Crime Center’s (“DC3”) Cyber Training Academy (“CTA”).

Per the contract, Jacobs will provide modernization, design, development and delivery-related services related to specialized cyber training to CTA in Linthicum Heights, MD. The contract — which is valued at $216.6 million — will be payable over a five-year period of performance, including a 12-month base period and four 12-month option periods.

DC3 CTA, also known as "the Academy", provides best-in-class cyber training to the Department of Defense’s (“DoD”) cyber workforce including Defense Criminal Investigative Organizations and Cyber Mission Forces. The main aim behind this mission is to secure the nation from continuously evolving cyber threats. Jacobs’ Aerospace, Technology and Nuclear (“ATN”) unit will help the DC3 CTA to carry out critical mission through leadership and innovation in developing and delivering cyber training for DoD personnel.

ATN’s Long-Term Prospects Solid

Jacobs’ ATN business (accounting for 36.5% of total third-quarter fiscal 2019 revenues) serves global automotive, aerospace, telecommunications, defense and nuclear clients, as well as the U.S. intelligence community. The segment’s fiscal third-quarter revenues increased 13.2% year over year. Also, backlog at the end of the quarter was up 18.3% from the year-ago period.

The company is successfully executing the ATN business, which is well positioned to deliver double-digit year-over-year increase in profit in fiscal 2019 on the back of solid project execution strategy and the recent acquisition of KeyW. KeyW — which provides engineering/technology solutions in intelligence, cyber and related national security concerned areas for the U.S. government — will certainly compliment the ATN business.

Impressive Fundamentals Drive Growth

Jacobs’ shares have rallied almost 62% so far this year, outperforming its industry’s 24.7% growth. The price performance is backed by an impressive earnings surprise history, having surpassed estimates in eight of the trailing nine quarters. The outperformance is likely to continue in the near term as well, buoyed by strong backlog, inorganic moves, its transformed portfolio, and increased focus on infrastructure, aerospace, cybersecurity and technical building projects.

In the fiscal third quarter, the company delivered solid top and bottom-line performance, backed by healthy segmental businesses and the KeyW acquisition. Notably, its focus on long-term mission-critical enterprise contracts also bodes well.

Backed by the above-mentioned tailwinds, Jacobs lifted its earnings and adjusted EBITDA guidance for fiscal 2019, given continuous innovation, solid project execution and diversification into new high-margin growth opportunities. It expects pro-forma EPS in the range of $4.75-$5.00. Also, it increased the lower end of the adjusted EBITDA guided range to $0.965-$1 billion from $0.92-$1 billion expected earlier.

Meanwhile, management has outlined new margin targets for the next three years (through 2021). It projects expansion of 125-175 basis points in adjusted operating margins, driven by a combination of higher-margin backlog, and focus on generating efficiencies through digital and technological solutions. The company projects 3-5% net organic revenue growth, with Buildings, Infrastructure and Advanced Facilities leading the way with 4-6% top-line CAGR and ATN with 2-3% CAGR.

Although Jacobs — which share space with AECOM ACM, KBR, Inc. KBR and Fluor Corporation FLR in the industry — is witnessing excessive contract pricing pressure, poor competency and extreme competition, regular contract wins and solid view are encouraging.

Zacks Rank

Currently, Jacobs carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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