KBR Growth Prospects Bright on Multiple Global Contracts

Premium engineering, procurement and construction company, KBR, Inc. KBR, is on a roll, securing a bunch of contracts across the globe.

In particular, the company won multiple contracts for infrastructure projects in Australia, a contract from a state-owned power generation company in Indonesia and another from the Royal Australian Navy (RAN) at HMAS Cerberus. These contract wins came close on the heels of the two global agreements from BP International Limited, secured earlier this week.

KBR’s diverse mix of business portfolio and lucrative contract wins in multiple segments aid it in combating cyclicality associated with any single market. Over the past six months, the company’s shares have returned around 31.3%, better than the Zacks categorized Engineering/R&D Services industry's 24.0%.

The Contract in Details

The infrastructure projects in Australia include aiding the expansion of the AU$600-million Mernda Rail Project and the Doric Contractors award to upgrade water infrastructure at the HMAS Stirling Navy base. The other infrastructure project includes providing marine and maritime structural engineering services to the Laing O'Rourke Managing Contractor team. The revenues associated with these contracts will be booked into the backlog of unfilled orders of the third quarter, for the company’s Engineering & Construction (E&C) business segment.

KBR has a long standing partnership with John Holland, aiding the latter to boost the safety and efficiency of the Melbourne’s rail network. The scope of the Mernda Rail Project work includes construction of three new stations, three rail bridges, two road underpasses and additional parking facilities. KBR’s scope of work for the Doric Contractors award, includes providing design, constructing and commissioning support services, for base-wide enhancements as part of the Australian Department of Defense Stage 3A redevelopment project for the site.

The scope of the Laing O'Rourke Managing Contractor project includes providing design, documentation, construction and commissioning support work. On the other hand, KBR’s contract from PT PLN – an Indonesian state-owned power generation company – requires it to provide engineering and design services, in order to expand/fortify gas supply infrastructure across Indonesia.

The company will be responsible for conducting a feasibility study on the project and then performing FEED work, roughly over nine months. The work will be executed through an integrated team led by KBR's London office, with support from the company’s Jakarta office and its Granherne subsidiary. Revenue from this project has been kept under wraps; however, the same will be booked into the backlog of unfilled orders for KBR's E&C segment during fourth-quarter 2016.

Finally, Scientific Management Associates (Operations) Pty Ltd is providing technical training support services to the RAN, while KBR has been hired to execute this project. Per this project, KBR will help in designing and delivering live, virtual and constructive training environments, and training management systems, over a span of five years. Revenue from this project will be booked into the backlog of unfilled orders for the company’s Government Services business segment, per the task orders awarded.

To Conclude

KBR’s diverse portfolio and backlog level highlight the company’s underlying strength. Presently, the company is banking on the strength of its Government Services and Technology & Consulting businesses to optimize its growth potential. Of late, the company’s Engineering and Construction segment has been bearing the brunt of lower customer spending. However, the recent contract wins are likely to provide some respite. In addition, investments undertaken in refining petrochemical and infrastructure projects around the world, signal bright days for this Zacks Rank #3 (Hold) company.

Despite the solid long-term prospects, prolonged softness in the energy related markets is anticipated to hurt the company’s financials in the near term. Volatile oil and gas markets, with oversupply putting pressure on the prices and spending levels, have marred KBR’s projects and orders.

Based on these concerns, the company’s earnings estimates have moved south in the past couple of months. Analysts have become increasingly bearish on the stock, as they have revised the Zacks Consensus Estimate for fiscal 2016 earnings downward in the past 60 days, from $1.33 to $1.17.

Stocks to Consider

Better-ranked stocks in the industry include Willdan Group, Inc. WLDN, Applied Industrial Technologies, Inc. AIT and Middleby Corp. MIDD. While Willdan Group sport a Zacks Rank #1 (Strong Buy), both Applied Industrial and Willdan Group stocks currently hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Willdan Group, Inc. has an average positive earnings surprise of 18.72% for the last four quarters.

Applied Industrial Technologies managed to beat estimates thrice over the trailing four quarters and has a positive earnings surprise of 4.9%.

Middleby Corporation beat earnings in each of the trailing four quarters, resulting in an average surprise of 15.9%.

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