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KBR Wins Twin Deals, Bolsters Government Services Business

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KBR Inc.’s KBR Government Services business, KBRwyle, recently clinched a $34.1-million task order from the U.S. Air Force (“USAF”). The company will offer analytical and engineering weapons systems support to the USAF with air traffic safety as well as cyber threat issues. Revenues related with the project will be booked as unfilled orders in Government Services business segment.

Per the contract, KBR will support the Engineering and Communication Network Branch of the USAF’s Life Cycle Management Center (AFLCMC) Engineering Directorate. The company will offer services such as system engineering analysis, cyber resiliency strategy development, cybersecurity assessments and Air Traffic Management / Identification Friend or Foe (ATM/IFF) component testing as well as certification for foreign military sales requirements and DoD.

This apart, KBRwyle also secured a $69.3-million indefinite-delivery/indefinite-quantity (IDIQ) contract from the Naval Air Warfare Center Aircraft Division. Per the deal, the company will provide engineering and technical services for the installation and maintenance of the Light Airborne Multipurpose System MK III Datalink. The company will be responsible for providing full life cycle support like systems integration, in-service engineering, test and evaluation, logistics, training, repair and validation, and technical management.

Our Take

KBR’s Government Services business is growing steadily, driven by organic growth and expansion of task orders on existing U.S. Government contracts. Growth on existing program management projects in the U.K is also supplementing revenue growth. Further, the company remains optimistic about growth across its key markets like the United States, the UK and Australia, driven by continued opportunities across the lifecycle of projects. Notably, over a year, the stock has returned 23%, against the industry’s decline of 4.9%.

 

 

Moreover, the Zacks Rank #3 (Hold) company intends to drive growth and expand market share through acquisition and strategic alliances. In this regard, some of the notable acquisitions made by the company are Honeywell Technology Solutions and Wyle. Further, the company remains optimistic about backlog growth due to the pipeline of opportunities. The company’s consulting business also experienced increased activity in the fourth quarter of 2017, driven by increased activity and higher oil prices, which is a good indicator for opportunities in future engineering and construction project.

Despite these positives, prolonged softness in the Engineering & Construction sector along with volatility in oil and gas prices may pose threat to the company's growth. Moreover, the long-cycle nature of the contracts, volatility in material & equipment pricing, risk of client loss and stiff competition raise concerns.

Stocks to Consider

Some better-ranked stocks from the same space are Potlatch Corporation PCH, Meritage Corporation MTH and Jacobs Engineering Group Inc. JEC. While Potlatch sports a Zacks Rank #1 (Strong Buy), both Meritage and Jacobs Engineering Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Potlatch surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 36.9%.

Meritage outpaced estimates in the preceding four quarters, with an average earnings surprise of 20.2%.

Jacobs Engineering Group trumped estimates in the trailing four quarters, with an average positive earnings surprise of 11.4%.

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