KBR, Inc.’s (KBR Quick QuoteKBR - Free Report) diversified service portfolio can be attributed to its consistent contract wins, which were primarily witnessed in the Government Solutions (“GS”) segment. The GS segment’s contribution is going strong thanks to the growth in the U.S. budget, especially toward emerging technologies accompanied by the increased demand patterns in its international business. This uptrend directly backs the backlog level of the company, which encourages growth prospects in this everchanging economy.

This Zacks Rank #3 (Hold) company’s earnings estimates for 2023 and 2024 showcase growth rate of 6.6% and 14.5%, respectively, from the year-ago period. Furthermore, the earnings estimates for the to-be-reported quarter imply growth rate of 10.1% year over year. The positive trend signifies bullish analysts’ sentiments, robust fundamentals and prospects of outperformance in the near term.

Although the aforementioned tailwinds back growth, increased costs and expenses are hindering the company’s prospects to some extent. Owing to these headwinds, shares of this global engineering, construction and services firm have declined 5.9% in the past three months against the Zacks Engineering - R and D Services industry’s 14.8% growth.

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Tailwinds

GS Segment Boosting Growth: KBR is witnessing impressive growth in demand for its GS services driven by favorable defense, space and military budgets. The long-term reimbursable service annuity-type contracts of the projects won under this segment decrease the risks scenario, thus solidifying the security of the contracts and aiding the company’s top-line growth. The government market in the United States remains strong, with a focus on critical budgets and emerging technologies.

KBR's GS international business stands out, providing high-end consulting services in defense, energy transition and critical infrastructure. In the third quarter of 2023, the book-to-bill ratio for GS was 1.6x, contributing to a trailing 12-month ratio of 1.1 for the entire segment. With solid bookings in the last quarter, the GS International segment positions KBR well for 2024. Further on, the company expects growth across its key markets in the United States, the U.K. and Australia, driven by continued opportunities across the lifecycle of projects.

Solid Backlog Level: The increasing global importance of national security, energy security, energy transition and climate change has been acting as a major tailwind for KBR. Thanks to this uptrend, the demand for the company’s services is surging on a global basis. This positive trend mirrors KBR’s growing backlog and option levels, which was $21.8 billion as of Sep 29, 2023, of which work in the GS business represents about 71%. The backlog value compares with $19.76 billion reported in 2022 end.

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. Going forward, KBR expects broad-based growth across its GS and Sustainable Technology Solutions (“STS”) segments. Primary growth drivers include high-end and differentiated government business work, strong margin performance and technology and consulting business.

Solid Earnings Surprise History: KBR portrays an impressive earnings surprise history, with its earnings beating in each of the trailing 21 quarters. The company delivered a trailing four-quarter earnings surprise of 10.7%, on average. Such growth trend induces bullish sentiments among investors, thus increasing the growth potential of the company. Furthermore, in the third quarter of 2023, its adjusted earnings per share topped the Zacks Consensus Estimate by 2.7% and increased 15.4% year over year.

Headwinds

Increasing Costs & Expenses: KBR’s growth prospects are hindered to some extent by the ongoing inflationary scenario and persisting macroeconomic risks. Additional expenses incurred to support the growth in the GS and STS business segments increased the company’s selling, general and administrative expenses during the first nine months of 2023. The metric increased 17.5% to $370 million. Furthermore, during the same time frame, the cost of revenues also increased 3.5% to $4.5 billion year over year.

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The Zacks Consensus Estimate for WLDN’s 2023 sales and EPS indicates growth of 14.1% and 47.7%, respectively, from a year ago.