KBR Continues to Hit New Highs - Analyst Blog


On May 31, 2013 KBR Inc. ( KBR ) shares hit another 52-week high, with a price of $36.69, beating its previous high of $36.46 attained on May 22, 2013. Total shares traded on that date were 1,936,00 as compared to a 3-month average trade volume of 1,396,450. KBR shares are currently trading at $36.10 as of closing on May 31, reflecting a year-to-date return of 20.4%.

Shares of this leading global engineering, construction and services company have shown an upward trend although the appreciation is most notable over the past month or so. The strength in share prices is the result of multiple factors that outweigh the fact that revenues and operating income were down year-over-year in the first quarter of 2013.

The Growth Drivers

Massive new supplies of natural gas have been discovered in the U.S., which lead the domestic price to fall nearly 70% below the international price. These low prices are creating a windfall for businesses that are big consumers and thus will also fetch big profits for the companies that help them expand.

KBR is an industrial construction and engineering business that specializes in hydrocarbon, chemical and petrochemical industries and is benefiting extensively from the demand boost for its services. This demand shows no sign of abating in the near future, given the exceptional prospects for additional new contracts over the next 7 to 10 years, as demand for low price gasoline continues.

In the recent past, the businesses in the U.S. were cutting down their spending on technical services because of the economic uncertainties, which were created by the U.S. fiscal cliff issue. The same was also impacted by the slowdown in China and the Eurozone debt crisis. But recently, with both the issues resolved and the Chinese economy stabilizing, the sector may be expected to recover. KBR is one of the leaders in the sector, and its stocks have hit new highs 3 times during the last month. 

During the last month, the company received 7 new contracts and orders. The most recent being the $17.9 million Air force task order awarded to its joint venture with CH2M Hill. And then there were the Dos Republicans Coal Partnership to provide detailed engineering and technical assistance services for the Eagle Pass Mine near Texas and the FEED contract from Pacific North West LNG Ltd. With so many contracts pouring in, KBR has a high positive earnings growth expectation of 12% for the next 5 years.

KBR is a high beta stock (with beta of 1.3). This means greater volatility and, therefore, riskier. But under favourable conditions along with a strong volume support, this also provides the potential for high returns. With KBR, it has been a blessing and thus investors will derive gains, which will tend to be more heavily driven by capital gains from stock price hikes and less from direct dividend income.

Other Stocks to Consider

KBR currently has a Zacks Rank #3 (Hold). Other stocks from the same sector that look promising include Michael Baker Corporation ( BKR ) with a Zacks Rank #1 (Strong Buy), while both Harris & Harris Group, Inc. ( TINY ) , and Quanta Services, Inc.( PWR ) have a Zacks Rank # 2 (Buy).

BAKER (MICHAEL) (BKR): Free Stock Analysis Report

KBR INC (KBR): Free Stock Analysis Report

QUANTA SERVICES (PWR): Free Stock Analysis Report

HARRIS & HARRIS (TINY): Get Free Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BKR , KBR , PWR , TINY



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