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KBR Stock Rallies 79% in a Year: Will the Bull Run Continue?
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KBR, Inc.’s (KBR - Free Report) shares have gained 79% in the past year, outperforming the Zacks Engineering - R and D Services industry’s 64.2% rally. The company is expected to gain from solid prospects of the Government Solutions (“GS”) business and growing backlog level.
Additionally, focus on restructuring activities and inorganic drive to expand market share is adding to KBR’s bliss. Although stiff competition, volatility of commodity prices and uncertainty in the global market are potential risks, high-end, technically differentiated businesses will certainly drive growth.
Earnings for 2021 and 2022 are expected to grow 24.9% and 13%, respectively, year over year. Also, it has an impressive earnings surprise history, having surpassed analysts’ expectations in the trailing 14 quarters.
Contribution From GS Business: The GS business is one of the major contributing units of KBR. The business has been riding on on-contract growth in logistics and engineering, take-away wins alongside new work awarded under the company’s portfolio of well-positioned contracting vehicles.
Robust contribution from KBR’s overseas logistics and mission support programs on the back of higher military exercise activities, increased outsourcing of sustainment activities by the military and the ramp up of new wins led to the growth. Higher tasking for various missile defense and other military priorities in its engineering business areas under select IDIQ contracts is a major positive.
The company expects healthy revenue growth from the segment in 2021, given a full year of Centauri, new wins, and strength in Science & Space, Defense & Intel, Readiness & Sustainment as well as International areas. Importantly, its 2021 guidance includes roughly $200 million in expected 2021 revenues from Middle East contingency operations.
Robust Backlog: KBR’s robust backlog level indicates substantial opportunities in the upcoming quarters. Encouragingly, nearly 62% of the backlog represents work in GS. The company is optimistic about margin expansion and broad-based growth across all segments in the near term. Its primary growth drivers include high-end and differentiated government business work, and technology and consulting business.
Product diversification, energy efficiency, and more sustainable technologies and solutions have been driving KBR’s overall performance. Demand for the company’s technologies across ammonia for food productions, olefins for non-single-use plastics, and in refining for product diversification and more green solutions to meet tighter environmental standards has been strong. The company continues to see increasing activity across the advisory portfolio, particularly in energy transition.
Restructuring Plans: KBR — which shares space with Quanta Services, Inc. (PWR - Free Report) in the same industry — has been executing plans to improve profitability as well as reduce the risk of its business profiles. The introduction of a restructuring program to optimize costs and improve operational efficiencies is commendable. In second-quarter 2020, management approved additional restructuring activities in connection with the decision to discontinue pursuing certain projects, principally lumpsum EPC and commoditized construction services, including LNG. The restructuring plan comprised 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 transformed itself from a three-segment business model to a two-segment model, featuring GS and Sustainable Technology Solutions (“STS”). Strengthening of the STS business with its high-end, sustainability-focused industrial sector expertise and client relationships creates exciting synergy opportunities.
Inorganic Moves: KBR has a penchant for acquisitions and strategic alliances for bolstering inorganic growth as well as expanding market share. In October 2020, it acquired Centauri, LLC, a leading independent provider of high-end space, directed energy and other advanced technology solutions.
On Mar 6, 2020, the company acquired certain assets and assumed liabilities of Scientific Management Associates Pty Ltd’s government defense business to enhance its position as a provider of high-end technical training to the Australian Armed Forces and Navy. The acquired business provides technical training services to the Royal Australian Navy. This acquisition was part of its GS segment.
The company is optimistic about the prospects of these buyouts, mainly on account of increased government spending across space and defense.
Other Key Picks
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. Jacobs and ChampionX’s earnings topped analysts’ expectations in the trailing four quarters, with an average of 17.5% and 72%, respectively.
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KBR Stock Rallies 79% in a Year: Will the Bull Run Continue?
KBR, Inc.’s (KBR - Free Report) shares have gained 79% in the past year, outperforming the Zacks Engineering - R and D Services industry’s 64.2% rally. The company is expected to gain from solid prospects of the Government Solutions (“GS”) business and growing backlog level.
Additionally, focus on restructuring activities and inorganic drive to expand market share is adding to KBR’s bliss. Although stiff competition, volatility of commodity prices and uncertainty in the global market are potential risks, high-end, technically differentiated businesses will certainly drive growth.
Earnings for 2021 and 2022 are expected to grow 24.9% and 13%, respectively, year over year. Also, it has an impressive earnings surprise history, having surpassed analysts’ expectations in the trailing 14 quarters.
Let’s look at the driving factors of this global engineering, construction and services firm, which currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Contribution From GS Business: The GS business is one of the major contributing units of KBR. The business has been riding on on-contract growth in logistics and engineering, take-away wins alongside new work awarded under the company’s portfolio of well-positioned contracting vehicles.
Robust contribution from KBR’s overseas logistics and mission support programs on the back of higher military exercise activities, increased outsourcing of sustainment activities by the military and the ramp up of new wins led to the growth. Higher tasking for various missile defense and other military priorities in its engineering business areas under select IDIQ contracts is a major positive.
The company expects healthy revenue growth from the segment in 2021, given a full year of Centauri, new wins, and strength in Science & Space, Defense & Intel, Readiness & Sustainment as well as International areas. Importantly, its 2021 guidance includes roughly $200 million in expected 2021 revenues from Middle East contingency operations.
Robust Backlog: KBR’s robust backlog level indicates substantial opportunities in the upcoming quarters. Encouragingly, nearly 62% of the backlog represents work in GS. The company is optimistic about margin expansion and broad-based growth across all segments in the near term. Its primary growth drivers include high-end and differentiated government business work, and technology and consulting business.
Product diversification, energy efficiency, and more sustainable technologies and solutions have been driving KBR’s overall performance. Demand for the company’s technologies across ammonia for food productions, olefins for non-single-use plastics, and in refining for product diversification and more green solutions to meet tighter environmental standards has been strong. The company continues to see increasing activity across the advisory portfolio, particularly in energy transition.
Restructuring Plans: KBR — which shares space with Quanta Services, Inc. (PWR - Free Report) in the same industry — has been executing plans to improve profitability as well as reduce the risk of its business profiles. The introduction of a restructuring program to optimize costs and improve operational efficiencies is commendable. In second-quarter 2020, management approved additional restructuring activities in connection with the decision to discontinue pursuing certain projects, principally lumpsum EPC and commoditized construction services, including LNG. The restructuring plan comprised 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 transformed itself from a three-segment business model to a two-segment model, featuring GS and Sustainable Technology Solutions (“STS”). Strengthening of the STS business with its high-end, sustainability-focused industrial sector expertise and client relationships creates exciting synergy opportunities.
Inorganic Moves: KBR has a penchant for acquisitions and strategic alliances for bolstering inorganic growth as well as expanding market share. In October 2020, it acquired Centauri, LLC, a leading independent provider of high-end space, directed energy and other advanced technology solutions.
On Mar 6, 2020, the company acquired certain assets and assumed liabilities of Scientific Management Associates Pty Ltd’s government defense business to enhance its position as a provider of high-end technical training to the Australian Armed Forces and Navy. The acquired business provides technical training services to the Royal Australian Navy. This acquisition was part of its GS segment.
The company is optimistic about the prospects of these buyouts, mainly on account of increased government spending across space and defense.
Other Key Picks
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. Jacobs and ChampionX’s earnings topped analysts’ expectations in the trailing four quarters, with an average of 17.5% and 72%, respectively.