KBR shares rally 79% in one year: will the bullish race continue? – October 5, 2021
KBR, Inc.‘s (KBR – Free Report) have gained 79% over the past year, outperforming the 64.2% rally of Zacks Engineering’s R&D services industry. The company should benefit from the strong outlook for the Government Solutions (“GS”) business and the growing level of the backlog.
In addition, the focus on restructuring activities and the inorganic drive to expand market share add to the happiness of KBR. While stiff competition, volatility in commodity prices, and uncertainty in the global market are potential risks, technically differentiated high-end companies are sure to drive growth.
Profits for 2021 and 2022 are expected to increase 24.9% and 13%, respectively, year over year. In addition, it has an impressive track record of earnings surprises, having exceeded analysts’ expectations for the past 14 quarters.
Let’s take a look at the driving factors behind this global engineering, construction and services company, which currently holds a Zacks Rank # 2 (Buy). You can see The full list of today’s Zacks # 1 Rank (Fort Buy) stocks here.
Contribution from GS Business: The GS activity is one of KBR’s main contributing units. The company benefited from growth in logistics and engineering contracts, takeaways, and new work awarded as part of the company’s well-positioned contract vehicle portfolio.
The strong contribution of KBR’s overseas logistics and mission support programs through higher military exercise activities, increased outsourcing of sustainment activities by the military and acceleration of new victories led to growth. The increased tasks for various missile defenses and other military priorities in its areas of engineering activity under certain IDIQ contracts is a major plus.
The company expects healthy segment revenue growth in 2021, given a full year of Centauri, further victories and strength in Science & Space, Defense & Intel, Readiness & Sustainment as well as in international domains. Importantly, his forecast for 2021 includes around $ 200 million in expected revenue for 2021 from emergency operations in the Middle East.
Robust order book: KBR’s high order book indicates substantial opportunities in the coming quarters. Encouragingly, almost 62% of the backlog represents work in GS. The company is optimistic about expanding margins and broad-based growth across all segments in the near term. Its main growth drivers include high-end and differentiated public works, as well as technology and consulting activities.
Product diversification, energy efficiency and more sustainable technologies and solutions have been driving KBR’s overall performance. Demand for the company’s technologies through ammonia for food production, olefins for non-single-use plastics and refining for product diversification and greener solutions to meet more stringent environmental standards has been strong. The company continues to see growing activity across the consulting portfolio, particularly in the energy transition.
Restructuring plans: KBR – which shares space with Quanta Services, Inc. (REP – Free Report) in the same industry – has implemented plans to improve profitability and reduce the risk of its business profiles. The introduction of a restructuring program to optimize costs and improve operational efficiency is commendable. In the second quarter of 2020, management approved additional restructuring activities as part of the decision to discontinue the pursuit of certain projects, primarily flat-rate EPCs and commodity construction services, including LNG. The restructuring plan included the reorganization of KBR’s management structure, primarily within the Energy Solutions business segment, during the first and second quarters of 2020.
KBR has completed its portfolio review and has moved from a three-segment business model to a two-segment model, comprising GS and Sustainable Technology Solutions (“STS”). Strengthening the STS activity with its expertise in the high-end industrial sector focused on sustainability and its relationships with customers creates exciting synergy opportunities.
Inorganic movements: KBR has a penchant for acquisitions and strategic alliances to support inorganic growth as well as expanding market share. In October 2020, it acquired Centauri, LLC, a leading independent provider of premium space, directed energy and other advanced technology solutions.
On March 6, 2020, the company acquired certain assets and assumed the responsibilities of government defense activities from Scientific Management Associates Pty Ltd in order to strengthen its position as a provider of high-end technical training for the armed forces and the Australian Navy. The acquired company provides technical training services to the Royal Australian Navy. This acquisition was part of its GS segment.
The company is optimistic about the prospects for these buyouts, primarily due to increased government spending on space and defense.
Other key choices
Other top-ranked stocks in the industry include Jacobs Engineering Group Inc. (J – Free report) and ChampionX Corporation (CHX – Free Report), each carrying a Zacks Rank # 2. Profits for Jacobs and ChampionX have beaten analysts’ expectations over the past four quarters, averaging 17.5% and 72%, respectively.