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KBR Inks $216M Cybersecurity Order, Fortifies Government Unit

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KBR, Inc. (KBR - Free Report) has clinched a contract from the Naval Information Warfare Center (NIWC) Atlantic to provide cybersecurity services for the Defense Health Agency (DHA). The four-year contract, valued at $216 million, was awarded to the company under the SeaPort Next Generation (SeaPort-NxG) contract.

Per this cost-plus-fixed-fee task order, KBR will support NIWC Atlantic with cybersecurity and risk management framework initiatives and provide support to the DHA Assessment and Authorization Division. The company’s scope of work includes addressing independent validation and verification results, helping prepare an Enterprise Mission Assurance Support Service authorization package as well as supporting the implementation of federal IT security regulations, directives and guidance.

KBR has been providing cybersecurity services to DHA since the agency's inception. The company has won a seat on this indefinite-delivery/indefinite-quantity (IDIQ) contract earlier in 2019. KBR will support all Department of Defense (DoD) Military Health System sites under this IDIQ contract and will ensure that members of DHA receive high-quality health services around the world.

Government Business Reflects Potential

The company’s Government Solutions business, which contributed 68.6% to third-quarter 2019 revenues, has been serving the U.S. Air Force, Army, Navy, Marine Corps as well as other federal agencies and foreign allies over the past several years.

Organically, sales from the Government Solutions business recorded 22%, 16% and 5% growth in the first, the second and the third quarter of 2019, respectively. The segment recorded 20.7% revenue growth in the first nine months of 2019. The consistent industry-leading organic revenue upside was underpinned by on-contract growth in logistics and engineering, take-away wins along with new work awarded under the company’s portfolio of well-positioned contracting.

Growth in KBR’s overseas logistics and mission support programs with higher military exercise activities, increased outsourcing of sustainment activities by the military and the ramp up of new wins bode well. Moreover, higher tasking for various missile defense and other military priorities in its engineering business areas, under select IDIQ contracts, also led to the upside. Further, KBR also expects growth across all its key markets in the United States, the U.K. and Australia, driven by continued opportunities across the lifecycle of projects.

Backlogs & Price Performance

The company’s backlog level of $14.6 billion (as of Sep 30, 2019) compared with $13.5 billion at 2018-end, highlights its underlying strength. Notably, more than 73% of the backlog represents work in Government Solutions. Notably, KBR is banking on the strength of Government Solutions business to optimize its growth potential. Also, steady growth in robust backlog is adding to KBR’s performance.

Owing to major contribution from KBR’s businesses, shares of the company have surged 92.8% year to date compared with its Zacks Engineering - R And D Services industry’s 25.4% rally.

The company’s solid performance is backed by an impressive earnings surprise history, having surpassed the Zacks Consensus Estimate in each of the trailing seven quarters. Its significant increase in backlog level, particularly in Government Solutions, positions it well for expansion in the upcoming days.

Zacks Rank & Key Picks

Currently, KBR currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same industry include Gates Industrial Corporation plc GTES, Quanta Services, Inc. PWR and AECOM ACM. Gates Industrial and Quanta Services sport a Zack Rank #1, whereas AECOM carries a Zacks Rank #2 (Buy).

Gates Industrial surpassed estimates in two of the trailing four quarters, the average being 12.1%.

Quanta Services’ current year earnings are expected to rise 15.3%.

AECOM has three-five year expected earnings per share growth rate of 12.4%.

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