KBR, Inc. KBR is poised to benefit from the Government Solutions business, courtesy of ongoing growth in logistics and mission support programs, base operations support, systems engineering, integration and space-related work. Global technology opportunities — led by ammonia, refining and olefins projects — are also expected to give a boost to its Technology Solutions segment.
Shares of the company have rallied 67% so far this year compared with its industry’s 12% collective growth. Also, it has outperformed the S&P 500’s 15% rise in the said period. Encouragingly, its earnings surpassed the Zacks Consensus Estimate in six of the trailing seven quarters.
Recently, the company came up with second-quarter 2019 results, wherein adjusted earnings topped the Zacks Consensus Estimate by 2.5%. The reported figure also increased 17.1% year over year. Moreover, total revenues increased 12.2% year over year on the back of robust performance of Government Services and Technology businesses. The top line also surpassed the consensus mark by 3.3%.
Notably, earnings estimates for 2019 and 2020 have been upwardly revised by 0.6% and 2.6%, respectively, over the past 30 days, suggesting that sentiments on KBR are moving in the right direction. This depicts bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let’s delve deeper and analyze the stock’s prospects:
Government Services Business - Key Growth Driver: The company’s Government Services or GS segment, accounting for more than 72% of total revenues, has been a key growth driver. The performance of this business is exceeding market expectation, adding to its bliss.
The GS segment recorded 78% and 30% revenue growth in 2018 and the first half of 2019, respectively. KBR’s industry-leading organic revenue improvement was underpinned by on-contract growth in logistics and engineering, take-away wins, alongside new work awarded under the company’s portfolio of well-positioned contracting vehicles. Organically, sales of the GS business recorded 16% growth in the second quarter, following a 22% increase in first-quarter 2019.
Ongoing growth in KBR’s overseas logistics and mission support programs — given higher military exercise activities, increased outsourcing of sustainment activities by the military, and the ramp up of new wins — led to considerable growth. Moreover, growth from logistics and base operations support, systems engineering and integration, along with space-related work led to the upside.
Strong Backlog: KBR’s strong backlog level highlights its underlying strength. The company’s backlog was $13.82 billion (as of Jun 30, 2019) compared with $13.5 billion at 2018-end. Going forward, KBR expects broad-based growth across all the segments, thanks to high-end and differentiated government services work, strong margin performance, and technology and consulting.
Acquisition Synergies: KBR has been bolstering inorganic growth and market expansion over the last few quarters. Recently, the company announced the acquisition of RRT Global’s isomerization technologies in order to offer more octane and clean fuel technology solutions to customers. The deal will allow KBR’s Technology Solutions business to offer isomerization technologies for C4, C5, C6 and C7 streams in refineries.
Other Stocks to Consider
Other top-ranked stocks in the Construction sector include MasTec, Inc. MTZ, Jacobs Engineering Group Inc. JEC and EMCOR Group, Inc. EME. While MasTec sports a Zacks Rank #1, the other two stocks carry a Zacks Rank #2.
MasTec surpassed earnings estimates in all the trailing four quarters, with the average being 21.7%.
Jacobs has a three-five year expected EPS growth rate of 11%.
EMCOR’s earnings for the current year are expected to increase 15.9%.
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