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KBR’s Contract Winning Spree Continues with EuroChem Award

Zacks

KBR, Inc. KBR recently announced that it has clinched an Operator Training Simulator (“OTS”) and a Reliability Based Maintenance (“RBM”) services contract from JSC EuroChem Northwest for an ammonia plant in Kingisepp, Russia. The revenue associated with this project has been booked into backlog of unfilled orders for the company’s Technology & Consulting Business Segment in two installments.

Though the overall value of the revenue has been kept under wraps, the first installment was booked in fourth-quarter 2016 and the next will be booked in second-quarter 2017. Per the deal, KBR will provide turnkey delivery of the OTS and RBM solutions and services for the ammonia plant, which boasts a design capacity of 1 million tonnes per annum.

Leveraging on KBR's Purifier Ammonia technology, the new plant tends to achieve preventative and predictive maintenance activities. While the OTS will offer a cost-effective solution for training operators, RBM will enable proactive monitoring of assets for continuous improvement of performance and higher productivity.

In the last one month, KBR has successfully clinched multiple contracts, which are likely to boost its top line for the upcoming quarters. Earlier this week, it secured an alliance contract by the Victorian Government for railroad crossing removal projects in Victoria, Australia. Expected revenue from this contract will be included in the company’s second-quarter 2017 backlog of unfilled orders for its Engineering and Construction business.


This apart, the Government Services business, KBRwyle, clinched an engineering services contract from NASA to support more than 20 NASA exploration missions. Task orders under this five-year, single award indefinite-delivery/indefinite-quantity (“IDIQ”) contract, with a maximum value of $442 million, will be booked into backlog of unfilled orders of KBRwyle throughout the contract period.

KBR had a disastrous run on the bourse, losing 11.0% year to date, wider than the Zacks categorized Engineering/ R&D Services industry’s average loss of 8.4%. Ongoing execution issues in certain major projects in the Engineering and Construction segment (“EPC”) have hurt the company’s performance. Huge cash outflows to fund losses on the EPC projects are also posing concerns for this Zacks Rank #3 (Hold) company.

Despite the unimpressive run, the stock has witnessed an upward estimate revision, which reflects bullish sentiment. In the past one month, the Zacks Consensus Estimate for full-year 2017 earnings has sharply trended up from $1.24 to $1.33, on the back of four upward estimate revisions versus zero downward.

KBR has a diverse mix of business portfolio that helps the company combat cyclicality associated with any single market. Also, KBR’s present backlog level of $10.6 billion highlights the company’s underlying strength. Over time, the company has diversified its backlog and significantly reduced the risks associated with it. About 65–70% of the backlog represents work in the Government Services. Majority of these Government Services are long-term reimbursable service-annuity type contracts that have significantly lower risks than some of the other projects.

The company believes that this will ultimately help in margin expansion and de-risking of business considerably. This apart, KBR is strongly committed to restructuring its operations and is targeting to achieve improvement in segment profit-margin percentages.

Stocks to Consider

Some better-ranked stocks in the industry include TopBuild Corp. BLD, Dycom Industries, Inc DY and EMCOR Group, Inc. EME. While TopBuild sports a Zacks Rank #1 (Strong Buy), Dycom Industries and EMCOR Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TopBuild has a positive average earnings surprise of 6.0% for the last four quarters, having beaten estimates thrice.

Dycom has a positive average earnings surprise of 17.30% for the last four quarters, having beaten estimates all through.

EMCOR Group has a decent earnings beat history, having surpassed estimates thrice over the trailing four quarters. It has an average positive surprise of 15.4% over the same time frame.

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