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KBR's Government Unit to Install Shore-Based C4ISR Systems

Zacks Equity Research

KBR, Inc.’s KBR U.S. Government Solutions unit is set to install shore-based command, control, communications, computer, intelligence, surveillance and reconnaissance (“C4ISR”) systems in locations across the world.

Chosen by Naval Information Warfare Systems Command (“NAVWAR”), KBR received this Shore Global C4ISR Installations multiple award indefinite-delivery/indefinite-quantity contract with seven other awardees. The contract, which has a maximum ceiling of $986 million, includes an initial five-year base plus a five-year option for all the awardees.

Per the contract, KBR will perform a range of services like C4ISR maintenance, modernization and system installation. Also, the contract work might include decommissioning and modernization of existing shore facilities, program and project management, engineering designs and training, as well as installation design and setting up of integrated C4ISR systems.

The shore-based C4ISR system is crucial for real-time threat analysis that leads to actionable insight, and reduces risk to assets and people. Notably, KBR’s expertise will help to keep NAVWAR programs connected, protected and at the forefront of technology.

KBR’s Government Solutions Business Holds Key

The company’s Government Solutions business — which contributed 68.6% to third-quarter 2019 revenues — has been serving the U.S. Air Force, Army, Navy, Marine Corps, and other federal agencies and foreign allies over the past several years.

The segment recorded 20.7% revenue growth in the first nine months of 2019. Organically, sales from the business recorded 22%, 16% and 5% growth in the first, second and third quarters of 2019, respectively. The upside was underpinned by on-contract growth in logistics and engineering, take-away wins, along with new work awarded under the company’s portfolio of well-positioned contracting.

Its backlog level of $14.6 billion (as of Sep 30, 2019) compared with $13.5 billion at 2018-end highlights its underlying strength. Notably, more than 73% of the backlog represents work in Government Solutions.

Our Take

Owing to solid performance across the businesses, shares of KBR have surged 94.7% year to date compared with its Zacks Engineering - R And D Services industry’s 23.4% rally. Notably, the company is banking on strength of the Government Solutions business to optimize its growth potential. Also, steady growth in robust backlog is adding to KBR’s bliss.

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 — is expected to benefit the company in long run. Moreover, higher tasking for various missile defense and other military priorities in its engineering business areas — under select IDIQ contracts — will also support growth. Importantly, KBR expects growth across all its key markets in the United States, the U.K. and Australia, driven by continued opportunities across the lifecycle of projects.

Zacks Rank & Key Picks

Currently, KBR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same industry include Gates Industrial Corporation plc GTES, Quanta Services, Inc. PWR and AECOM ACM. Gates Industrial and Quanta Services sport a Zack Rank #1, whereas AECOM carries a Zacks Rank #2 (Buy).

Gates Industrial surpassed estimates in two of the trailing four quarters, with the average being 12.1%.

Quanta Services’ earnings for the current year are expected to rise 15.3%.

AECOM has three-five year expected earnings per share growth rate of 12.4%.

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