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KBR Receives Three LOGCAP V Task Orders to Aid US Army

Zacks Equity Research

KBR, Inc. KBR government services unit, KBRwyle, has clinched multiple prime contracts for providing logistics support services to the U.S. Army, coalition partners as well as other federal agencies. It has received this indefinite-delivery, indefinite-quantity (IDIQ) contract under the $82B Logistics Civil Augmentation Program (LOGCAP) V contract. Notably, the LOGCAP — the brainchild of the U.S. Army — is designed for offering contingency support to strengthen the army.

Apart from a base period of five years, the contract has an option of five additional one-year ordering periods. Notably, KBR has received this order to offer LOGCAP logistics support services in Afghanistan. The contract will also provide assistance to the U.S. European Command and Northern Command for setting the theater and associated performance task orders. Notably, under LOGCAP V, KBRwyle won three of the seven major contracts.

KBR has a good track record of delivering global base life support as well as logistics services via LOGCAP contracts for more than 20 years. The company had also received its biggest contract in the history of the United States during LOGCAP III.

KBR’s Government Services Unit: A Bright Spot

KBR believes that this contract provides a huge boost to the company’s business. However, the deal will not have any impact on the company’s results in 2019 as it will not have any material impact till 2020.

KBRwyle, one of the leading providers of cyber and electronic security solutions in the United States, has a wide experience in developing IT solutions for mission-focused programs. It constantly delivers innovative and high-quality IT services.

These apart, the company’s Government Services segment — accounting for more than 72% of its total revenues — has been performing well. Presently, it is banking on the strength of the said segment to optimize its growth potential.

Furthermore, KBR’s backlog level of $13.5 billion (as of Dec 31, 2018) compared with $10.6 billion in the corresponding period of 2017 highlights its underlying strength. Notably, more than 80% of the backlog represents work in the Government Services. Majority of these Government Services are long-term reimbursable service annuity-type contracts that have significantly lower risks than some of the other projects. The company believes that this will ultimately help in margin expansion and de-risking of business considerably.

In a year’s time, shares of this Zacks Rank #2 (Buy) have gained 20.5% compared with the industry’s 5.1% increase.


Other Key Picks

A few other prospective players in the same space include Apergy Corporation APY, Quanta Services, Inc. PWR and AECOM ACM. While Apergy and Quanta Services sport a Zacks Rank #1 (Strong Buy), AECOM carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Apergy, Quanta Services and AECOM’s earnings for the current year are expected to increase 2.8%, 25.3% and 2.6%, respectively.

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