KBR Inc. (KBR - Free Report) recently announced that its government services business, KBRwyle, has secured a cost-plus-fixed-fee contract modification from the Army Contracting Command (ACC). Per the deal, KBR will offer base life support services to the U.S. Army throughout Iraq, supporting the Operation Inherent Resolve (OIR). Estimated revenues related to this one-year task order modification will be booked as unfilled orders in the Government Services business segment’s backlog.
Notably, the ACC exercised third option year on the task order while awarding this modification deal. The original task order was awarded in December 2014, under the Logistics Civil Augmentation Program (LOGCAP) IV contract.
KBR will continue to cater to the logistical requirements of the Army’s deployed forces, according to the contract. The company will also provide its support services, including power generation, firefighting and morale, welfare, and recreation (MWR). Furthermore, it will offer waste and facilities management that include custodial, post office, laundry, food and water, vector as well as pest management services. This apart, KBR is likely to be responsible for supervising fuel handling and airfield operations at military sites located in Erbil, Al Asad, Taji, Al Taqaddum, Al Bashur and Q-West.
Existing Business Scenario
KBR is banking on the strength of its Government Services businesses to optimize its growth potential. In fact, this particular business is growing steadily, which is a positive for the company. During the first quarter of 2018, the segment performed impressively driven by organic growth and new award wins from the U.K. Ministry of Defence, the U.S. Air Force and the Naval Air Warfare Center Aircraft Division. Further, the company expects growth across all its key markets in the United States, the UK and Australia on account of continued opportunities across the lifecycle of projects.
Meanwhile, KBR remains optimistic about backlog growth in the early 2018 owing to the pipeline of opportunities. Also, the company’s consulting business is experiencing increased activity in the past few quarters backed by more efficient reutilization and strong pricing environment. Additionally, an increasing portfolio of smaller and OpEx-facing projects, services, program management and maintenance contracts give the company a stronger foundation compared with the previous years. The company believes that healthy balance between hydrocarbons and government projects positions it well for future growth.
In a year’s time, this Zacks Rank #2 (Buy) company’s shares have gained 25% against the industry’s decline of 1.4%.
KBR also looks for acquisitions and strategic alliances for bolstering its inorganic growth and expanding market share, which is encouraging. In this regard, the company recently completed the SGT and the Aspire buyouts. It remains optimistic about the prospects of both the buyouts mainly on account of increased government spending across space and defense. We believe such strategic buyouts should supplement KBR’s top-line performance, going ahead.
Other Stocks to Consider
Some other top-ranked stocks in the same space include Quanta Services, Inc. (PWR - Free Report) , Jacobs Engineering Group Inc. (JEC - Free Report) and Gibraltar Industries, Inc. (ROCK - Free Report) . All these three companies carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Quanta Services surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 6.7%.
Jacobs Engineering Group outpaced estimates in the preceding four quarters, with an average earnings surprise of 12.3%.
Gibraltar Industries exceeded estimates thrice in the preceding four quarters, with an average earnings surprise of 12.1%.
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