Owing to lower level of investments in the energy market, KBR, Inc. (KBR - Free Report) plans to exit most of the liquefied natural gas (LNG) construction and other energy projects. Per Reuters, KBR notified investors and employees that it will refocus on government and technology businesses, and no more engage in fixed-contract energy projects.
The company’s Energy Solutions segment, which accounted for 23.8% of 2019 revenues, registered a whopping 80.5% year-over-year revenue growth in first-quarter 2020. The upside was backed by several reimbursable EPC projects that commenced in 2019 along the U.S. Gulf Coast and expanded services on a global basis.
However, energy market conditions remain unpredictable owing to lower level of investments from customers. Currently, KBR is holding various EPC contracts for several LNG projects that include Freeport LNG in Texas, Pieridae Energy Ltd's proposed Goldboro LNG facility in Nova Scotia, Canada, and Glenfarne Group's Magnolia LNG project in Louisiana. Meanwhile, Freeport LNG has delayed its project to 2021 and plans to seek new bids for construction, according to a spokeswoman Heather Browne.
Moreover, KBR did not reveal potential impairment charges on its current LNG projects. Yet, the company pointed out that it expects the energy business to be "marginally profitable" in 2020. The company will discuss more details about its exit during the second-quarter 2020 earnings release, scheduled next month.
Shares of this Zacks Rank #3 (Hold) company have gained 33.2% compared with the industry’s 30.1% rally in the past three months. The uptrend was mainly backed by solid project execution strategy, contract wining spree, acquisitions and robust organic growth. We believe that the recent move will further boost the company’s performance as it will remove cyclicality in the business arising from the energy sector.
KBR — which shares space with Gates Industrial Corporation plc (GTES - Free Report) , Quanta Services, Inc. (PWR - Free Report) and AECOM (ACM - Free Report) in the same industry — also projects a marginal improvement in the energy business this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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