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KBR to Offer Base Operations Support to U.S. Navy in Bahrain

Zacks Equity Research

KBR, Inc. KBR has received a contract modification worth $23.7 million to provide base operations support services at Shaikh Isa Air Base in the Kingdom of Bahrain.

This 12-month contract, which is an extension of five-year contract received in June 2014 and has a three-month option period, was awarded by Naval Facilities Engineering Command, Europe, Africa and Southwest Asia (“NAVFAC EURAFSWA”).

Deal Rationale

Per the contract, KBR will continue to offer numerous services like galley, facility and grounds maintenance services; custodial, pest control, power generation and distribution services; diesel fuel operations, reverse osmosis water purification and distribution; and base vehicle maintenance-related services.

Earlier, KBR’s Government Solutions business delivered similar services at Isa Air Base for four years within the Logistics Civil Augmentation Program (“LOGCAP”) III and IV contracts.

Also, it will keep performing award-winning galley services. Notably, this year, its base dining facility — Paradisa Cafe — again earned a 5-Star accreditation (the highest level of evaluation for food service operations) from the Navy.

Solid Government Contracts Bode Well

KBR has been a leading base operations supporter for U.S. and allied military forces, along with diplomatic and civilian personnel deployed around the world. Over the past 75 years, it has helped in successful U.S. government missions and military readiness in the world's most challenging environments.

The company’s Government Solutions unit, which constitutes nearly 67% of third-quarter 2019 revenues, has provided more than 55 years of ground systems support for the U.S. Air Force and Navy, NASA, as well as other agencies. Presently, KBR is banking on strength of the said business to optimize growth potential. The performance of the particular business is exceeding market expectation, which is adding to KBR’s bliss.

In the first, second and third quarters of 2019, organic sales in the segment recorded 22%, 16% and 5% year-over-year growth, respectively. The segment recorded 20.7% revenue growth in the first nine months of 2019. Going forward, KBR expects growth across all its key markets, driven by continued opportunities across the lifecycle of projects.

As of Sep 30, 2019, KBR’s total backlog was $14.64 billion compared with $13.5 billion at 2018-end. Government Solutions booked $10.74 billion, constituting more than 73% of the total backlog.

Backed by solid performance across the business, strong backlog and project execution strategy, KBR raised its 2019 adjusted earnings per share guidance range to $1.64-$1.74 from the prior expectation of $1.58-$1.73. Notably, the company had registered earnings of $1.53 per share in 2018.

Shares of KBR have gained 99.9% year to date, comparing favorably with its industry’s 24.8% 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. In fact, third-quarter 2019 marked the 11th consecutive quarter of strong revenues, earnings and cash flow, and an impressive year-over-year backlog growth.

Although KBR, which share space with AECOM ACM, Jacobs Engineering Group Inc. JEC and Fluor Corporation FLR in the industry, is witnessing excessive contract pricing pressure, poor competency and extreme competition, regular contract wins and solid view are encouraging.

Zacks Rank

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

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