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KBR Banks on Solid Contract Wins Amid High-Cost Environment
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KBR, Inc. (KBR - Free Report) is notably benefiting from consistent contract wins, which are driving its backlog levels, and strategic investments to fuel innovation.
Recently, this global engineering, construction and services firm reported its third quarter 2023 results, wherein its adjusted earnings and revenues grew year over year by 15.4% and 8.9%, respectively. The uptrend was driven by an increase in new contracts and on-contract growth within all Government Solutions (“GS”) business units, as well as a rising demand for the Sustainable Technology Solutions (“STS”) portfolio.
KBR also solidifies its growth prospects with an impressive earnings history with earnings surpassing estimates in all the past 14 quarters. It also delivered a trailing four-quarter earnings surprise of 10.7%, on average.
However, the earnings estimates of this Zacks Rank #3 (Hold) company for fiscal 2024 have moved south to $2.87 per share from $2.90 per share over the past 30 days. Increased costs and expenses, uncertain macroeconomic scenario and competitive pressure are headwinds to KBR’s growth prospects.
Image Source: Zacks Investment Research
Shares of KBR have increased to 3.6% in the past year, underperforming the Zacks Engineering - R and D Services industry’s 22.5% growth.
Appealing Factors of the Stock
Impressive Contract Wins: Since second-quarter 2023 end, KBR has won 14 reportable contracts. The determination to lower emissions, product diversification, energy efficiency and more sustainable technologies and solutions have been driving its performance. The 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 going strong.
Focusing on the recent awards, on Nov 16, 2023, KBR’s Frazer-Nash Consultancy announced extending its support for the new energy technologies, systems and processes for the U.K.'s £1bn Net Zero Innovation Portfolio (originally awarded in December 2021). On Nov 14, the company signed a Memorandum of Understanding with Korea-based ISU Chemical to provide its innovative technology, H2ACT, for Ulsan’s commercial ammonia cracking project. Also, on Nov 9, the company won a Front-End Engineering Design contract from Fidelis New Energy for Project Fyrkat.
Solid Backlog Levels: The increasing global importance of national security, energy security, energy transition and climate change has been acting as a major tailwind for KBR. This is mirrored in its backlog and option level, which has reached $21.8 billion as of Sep 29, 2023.
In third-quarter 2023, KBR received $3.5 billion in bookings and options in highly strategic areas with a trailing 12-month book-to-bill of 1.2x. The upside was backed by increased new contracts and on-contract growth within all GS business units. Also, the growing demand for STS, mainly from engineering and professional services and technology licensing, adds to the growth. Going forward, KBR expects broad-based growth across both segments, primarily driven by high-end and differentiated government business work, strong margin performance and technology and consulting business.
Strategic Investments: KBR focuses on profitable investments that enhance its market positions and increase growth sustainability. During third-quarter 2023 earnings call, the company announced its Global Hackathon competition, which is intended to spark innovation capabilities. This competition will encourage innovation to develop and present solutions in the areas of sustainability, digitalization, AI and branding.
Furthermore, its proprietary technology, Iron Stallion, is currently being used by two of KBR’s allies, resulting in its uptrend due to innovation investments. This technology is capable of digitally tracking satellites and space debris using proprietary algorithms, advanced AI and machine learning to predict, estimate as well as validate future events.
Factors Hindering Growth
High Costs & Expenses: The ongoing inflationary environment is pressuring KBR’s investment opportunities to some extent. During the third quarter of 2023, its selling, general and administrative expenses increased 23% to $127 million year over year mainly driven by additional expenses incurred to support the growth in both the GS and STS business segments. The cost of revenues also increased 9% to $1.5 billion compared with the prior year period.
Competitive Pressures: KBR’s domestic and foreign operations are subject to significant competitive pressure. In order to survive the competition, the company needs to keep itself constantly updated about state-of-the-art construction procedures involving huge capital expenditure, which hurt near-term margins and operating income.
Key Picks
Here are some better-ranked stocks that investors may consider from the Zacks Construction sector.
IBP delivered a trailing four-quarter earnings surprise of 7.3%, on average. Shares of the company have gained 37.1% in the past six months. The Zacks Consensus Estimate for IBP’s 2023 sales and earnings per share (EPS) indicates growth of 3.4% and 8.6%, respectively, from the previous year’s reported levels.
Acuity Brands, Inc. (AYI - Free Report) currently sports a Zacks Rank of 1. AYI delivered a trailing four-quarter earnings surprise of 12%, on average. Shares of the company have gained 17.3% in the past six months.
The Zacks Consensus Estimate for AYI’s fiscal 2024 sales and EPS indicates a decline of 3% and 4.7%, respectively, from the previous year’s reported levels.
Construction Partners, Inc. (ROAD - Free Report) currently sports a Zacks Rank of 1. ROAD has a trailing four-quarter earnings surprise of 10.6%, on average. Shares of the company have gained 49.4% in the past six months.
The Zacks Consensus Estimate for ROAD’s fiscal 2024 sales and EPS indicates growth of 14.6% and 47.1%, respectively, from the previous year’s reported levels.
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KBR Banks on Solid Contract Wins Amid High-Cost Environment
KBR, Inc. (KBR - Free Report) is notably benefiting from consistent contract wins, which are driving its backlog levels, and strategic investments to fuel innovation.
Recently, this global engineering, construction and services firm reported its third quarter 2023 results, wherein its adjusted earnings and revenues grew year over year by 15.4% and 8.9%, respectively. The uptrend was driven by an increase in new contracts and on-contract growth within all Government Solutions (“GS”) business units, as well as a rising demand for the Sustainable Technology Solutions (“STS”) portfolio.
KBR also solidifies its growth prospects with an impressive earnings history with earnings surpassing estimates in all the past 14 quarters. It also delivered a trailing four-quarter earnings surprise of 10.7%, on average.
However, the earnings estimates of this Zacks Rank #3 (Hold) company for fiscal 2024 have moved south to $2.87 per share from $2.90 per share over the past 30 days. Increased costs and expenses, uncertain macroeconomic scenario and competitive pressure are headwinds to KBR’s growth prospects.
Image Source: Zacks Investment Research
Shares of KBR have increased to 3.6% in the past year, underperforming the Zacks Engineering - R and D Services industry’s 22.5% growth.
Appealing Factors of the Stock
Impressive Contract Wins: Since second-quarter 2023 end, KBR has won 14 reportable contracts. The determination to lower emissions, product diversification, energy efficiency and more sustainable technologies and solutions have been driving its performance. The 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 going strong.
Focusing on the recent awards, on Nov 16, 2023, KBR’s Frazer-Nash Consultancy announced extending its support for the new energy technologies, systems and processes for the U.K.'s £1bn Net Zero Innovation Portfolio (originally awarded in December 2021). On Nov 14, the company signed a Memorandum of Understanding with Korea-based ISU Chemical to provide its innovative technology, H2ACT, for Ulsan’s commercial ammonia cracking project. Also, on Nov 9, the company won a Front-End Engineering Design contract from Fidelis New Energy for Project Fyrkat.
Solid Backlog Levels: The increasing global importance of national security, energy security, energy transition and climate change has been acting as a major tailwind for KBR. This is mirrored in its backlog and option level, which has reached $21.8 billion as of Sep 29, 2023.
In third-quarter 2023, KBR received $3.5 billion in bookings and options in highly strategic areas with a trailing 12-month book-to-bill of 1.2x. The upside was backed by increased new contracts and on-contract growth within all GS business units. Also, the growing demand for STS, mainly from engineering and professional services and technology licensing, adds to the growth. Going forward, KBR expects broad-based growth across both segments, primarily driven by high-end and differentiated government business work, strong margin performance and technology and consulting business.
Strategic Investments: KBR focuses on profitable investments that enhance its market positions and increase growth sustainability. During third-quarter 2023 earnings call, the company announced its Global Hackathon competition, which is intended to spark innovation capabilities. This competition will encourage innovation to develop and present solutions in the areas of sustainability, digitalization, AI and branding.
Furthermore, its proprietary technology, Iron Stallion, is currently being used by two of KBR’s allies, resulting in its uptrend due to innovation investments. This technology is capable of digitally tracking satellites and space debris using proprietary algorithms, advanced AI and machine learning to predict, estimate as well as validate future events.
Factors Hindering Growth
High Costs & Expenses: The ongoing inflationary environment is pressuring KBR’s investment opportunities to some extent. During the third quarter of 2023, its selling, general and administrative expenses increased 23% to $127 million year over year mainly driven by additional expenses incurred to support the growth in both the GS and STS business segments. The cost of revenues also increased 9% to $1.5 billion compared with the prior year period.
Competitive Pressures: KBR’s domestic and foreign operations are subject to significant competitive pressure. In order to survive the competition, the company needs to keep itself constantly updated about state-of-the-art construction procedures involving huge capital expenditure, which hurt near-term margins and operating income.
Key Picks
Here are some better-ranked stocks that investors may consider from the Zacks Construction sector.
Installed Building Products, Inc. (IBP - Free Report) currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
IBP delivered a trailing four-quarter earnings surprise of 7.3%, on average. Shares of the company have gained 37.1% in the past six months. The Zacks Consensus Estimate for IBP’s 2023 sales and earnings per share (EPS) indicates growth of 3.4% and 8.6%, respectively, from the previous year’s reported levels.
Acuity Brands, Inc. (AYI - Free Report) currently sports a Zacks Rank of 1. AYI delivered a trailing four-quarter earnings surprise of 12%, on average. Shares of the company have gained 17.3% in the past six months.
The Zacks Consensus Estimate for AYI’s fiscal 2024 sales and EPS indicates a decline of 3% and 4.7%, respectively, from the previous year’s reported levels.
Construction Partners, Inc. (ROAD - Free Report) currently sports a Zacks Rank of 1. ROAD has a trailing four-quarter earnings surprise of 10.6%, on average. Shares of the company have gained 49.4% in the past six months.
The Zacks Consensus Estimate for ROAD’s fiscal 2024 sales and EPS indicates growth of 14.6% and 47.1%, respectively, from the previous year’s reported levels.