Jacobs Engineering [NYSE:JEC] March 31, 2009 $38.36 (11 AM EST)
52-week range: $26.00 (Nov. 20, 2008) - $98.31 (May 19, 2008)

Jacobs is one of the biggest US professional service firms with 2008 revenues of $11.252 billion. They also operate in the U.K. and Ireland. They have posted outstanding results over the past decade with last year’s results showing all-time highs in sales, cash flow, earnings and book value.

Despite the poor economic conditions consensus estimates for 2009 are centered on $3.60 per share up 7.8% from last year’s EPS. The company had $787.9 million in cash as of year end 2008 against only $40 million in total debt (debt = 2% of total capital).

JEC shares have dropped from an all-time high of $103.30 in early 2008 to just $38.36 right now as investor worry about possible project cancellations that would reduce their backlog. That fear may be already more than reflected in the present very low valuation as these shares now trade at just 11.5x last fiscal year’s and < 10.7x this FY’s expected EPS versus a 10-year median P/E of 19x. Fiscal years end Sep. 30th).

Read more…

Fluor [NYSE:FLR] March 31, 2009 close: $34.55
52-week range: $28.50 (Nov. 21, 2008) - $101.36 (Jun. 23, 2008)

The current configuration of Fluor was established in January 2002 after the spin-off of Massey Energy. Fluor is a global provider of professional services in engineering and construction, procurement, project management, maintenance and operations. 2008 revenues hit a new record high at $22.326 billion up 33% from $16.691 billion in 2007.

Last year’s revenue surge was fueled by energy-based capital spending as oil prices spiked in the first half. Profits rose 50% as margins expanded. This year is likely to show much more subdued growth with the cooling off of the energy sector. Consensus views for 2009 are now running between $3.55 and $3.76 – still enough to set a new all-time EPS record. 2010 estimates assume a dip from there to about $3.00 - $3.43 depending on economic conditions and oil price movements.

Regardless, Fluor shares look very cheap at just 9.7x this year’s lower end expectations. The lowest average annual P/E since Fluor took on its current structure was 15.3x during the severe bear market of 2002.

Read more…

Read more…

Perini (NYSE: PCR) provides general contracting, construction management and architectural design services for both the civil and commercial markets. The company deals with the U.S. military, government agencies as well as utility companies on both domestic and international projects.

Business was very strong from 2005 through 2008 and EPS grew from $0.20 to $3.67 over that time frame (excluding one-time acquisition related charges in late 2008). The slow economy has cut backlogs and earnings expectations for 2009 and 2010 to $2.75 and $2.78 pending improvements in overall business conditions.

Perini has used the downturn to make a couple of purchases that should lead to higher revenues and earnings for the next growth cycle. In January the company closed on general contractor Keating Building Company for $43 million in cash plus future payments tied to operating results in 2009 to 2011. Keating had 2008 sales of about $430 million making the purchase look like a bargain at just 1/10th of sales.

Perini’s balance sheet looks good. As of December 31, 2008 it held $386 million in cash against only $80.2 million in total debt with only $7.3 million coming due over the next five years. Total debt equaled just 5% of total capital.

PCR shares have dropped from a 2008 high of $44.80 to just $12.25 right now making its P/E a very low 4.5x year ahead estimates. The poor economy seems to be more than priced in already. While PCR shares have often traded at 3 – 5 times book value, today they trade at < 1 time book.

Even six times earnings would bring these shares back to $16.50 by year end. PCR has changed hands as high as $26.60 during January this year.

Here’s a fine, relatively conservative combination play that makes sense even if you’re somewhat pessimistic for the near term.

On the October 16 expiration date:

If PCR shares have risen to $12.50 or higher

(just 2% above the current quote):

Your $12.50 calls will be exercised.

You will sell your shares for $12,500.

Your $12.50 puts will expire worthless (a god thing for you as a seller).

You will have no further option obligations.

You will have $12,500 cash for your initial outlay of $6,150.

Net profit would equal $6,350.

That’s a cash-on-cash return of 103% over less than seven months on shares which only had to rise by 2% or more from inception of the trade.

What’s the downside?

Should PCR shares remain under $12.50 through October 16, 2009:

Your $12.50 calls will expire worthless.

Your $12.50 puts would be exercised.

You would be forced to buy an additional 1000 shares.

You’d need to lay out an extra $12,500 cash.

You would then own 2000 shares of PCR.

Your break-even would be figured as follows:

On the original 1000 shares it’s the $12.25 purchase price less the

$3.00 /share call premium = $9.25 /share.

On the shares from the assigned puts it’s the $12.50 strike price less

the $3.10 /share put premium = $9.40 /share.

Your average cost would be the average of $9.25 and $9.40 = $9.33 /share.

Thus, even if Perini shares decline by $2.93 or (-23.8%) you would not lose money on this trade.

Could PCR trade below $9.33 by October? Sure, but the last time that happened was in June of 2004. Since then sales, earnings, cash flow and book value have all more than doubled.

The absolute low prices for PCR shares were $12.01, $19.80, $28.00 and $11.50 in each calendar year 2005-2006-2007-2008 respectively making the probability of a sub-$9.33 price a very low probability event.

Conversely, high share prices of $27.30, $33.47, $75.43 and $44.80 in 2005-2008 show the rather large historical upside.

If anyone thinking of this trade decided to use higher strike price calls it would be understandable.

In summary:

Traders who put on this trade as written up here would see best case scenario gains of 103% over a seven month period on shares which only need to rise by 2%. They would see downside protection of over 23% to a share price that is lower than any trade on PCR since almost five years ago.

Disclosure: Author is long PCR shares and short PCR options.

March 26, 2009 [10:30 AM] $20.67 /share
52-week range: $14.96 (Nov. 21, 2008) - $42.59 (Mar. 25, 2008)

Nasdaq OMX owns and operates the largest electronic securities market in the United States as well as the Nordic exchange OMX and the Philadelphia Exchange which trades stocks and options.

Despite recent market conditions 2008 saw all-time record earnings per share at $2.01 versus $1.59 in 2007. Revenues grew to $3.649 billion from $2.437 billion but that includes revenues from their recently completed acquisitions so it is not apples to apples on a year over year basis.

Because of the dull trading environment consensus views for 2009 and 2010 are now subdued at $2.03 and $2.30 respectively. Should the markets show a decent rebound it would be expected that these estimates would rapidly adjust considerably higher.

Read more…

Paychex, Inc. [NDQ:PAYX] March 25, 2009: $23.62
52-week range: $20.31 (March 3, 2009) - $37.47 (May 2, 2008)
Dividend = $0.31 quarterly = 5.25% current yield

Paychex provides computerized payroll-accounting, salary deposit, payroll tax payment, and tax return filing services to over 572,000 small and mid-size businesses in 36 states plus the District of Columbia. They also provide human resource product and services which account for about 24% of their top line revenues of about $2.1 billion.

This fiscal year’s earnings (years end May 31) are likely to show the first ever year-over-year decline in the company’s history due to the slow US economy and its accompanying decrease in total employee count among their customers. The share price has reflected this interruption in growth by falling about 50% from a 2007 high of $47.10 to today’s close of $23.62.

Read more…