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KBR Secures Engineering Services Contract Worth $442 Million

Zacks Equity Research

KBR, Inc. KBR recently announced that its Government Services business, KBRwyle, clinched an engineering services contract from NASA to support more than 20 NASA exploration missions. Task orders under this five-year, single award indefinite-delivery/indefinite quantity (“IDIQ”) contract, with a maximum value of $442 million, will be booked into backlog of unfilled orders of KBRwyle throughout the contract period.

Per the contract, KBRwyle will offer ground systems and operations support to various NASA missions at the Goddard Space Flight Center in Greenbelt, MD. These missions are supervised by the Space Science Mission Operations and Earth Science Mission Operations. Moreover, the premium engineering, procurement and construction firm will provide engineering services throughout the spacecraft mission life cycle for mission operations, including concept studies, design, development and integration.

KBR’s Government Services business has proved to be its strongest growth driver in recent times. Further, to fortify its government business, the company acquired Honeywell International Inc.’s HON technology development and engineering unit — Honeywell Technology Solutions, Inc. — and Wyle Inc last year. KBR remains optimistic about its prospects, primarily driven by lucrative contracts from the U.S. military and the new wins on work with the UK Ministry of Defense. This segment is expected to execute almost $3 billion in contracts in 2017.

Despite the impressive foothold of its government business and lucrative contract wins, KBR has been grappling with a host of issues that has hurt its growth aspects in recent times. Over the past one year, the stock returned 5.7%, lower than the Zacks categorized Engineering/ R&D Services industry’s average gain of 12.1%. The pullback in the share price was likely driven by KBR’s ongoing execution issues in certain major projects in the Engineering and Construction segment (“EPC”).

For quite some time now, KBR has been witnessing huge cash outflows to fund losses on the EPC projects. Going forward, the company expects “work-off” of large capital projects in Engineering and Construction, and also in the non-strategic business area to pose as major concerns. Of late, KBR has been witnessing huge cash outflows to fund losses on the EPC projects. This Zacks Rank #3 (Hold) company expects “work-off” of large capital projects in E&C to pose as major concerns.

Stocks to Consider

Some better-ranked stocks in the industry include Dycom Industries, Inc DY and M.D.C. Holdings, Inc. MDC. Both the stocks carry Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dycom has a positive average earnings surprise of 17.30% for the last four quarters, having beaten estimates all through.

M.D.C. Holdings has a decent earnings beat history, having surpassed estimates thrice over the trailing four quarters. It has an average positive surprise of 7.5% over the same time frame.

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