KBR Wins Nasa Contract, Fortifies Government Service Segment

KBR Inc. 's KBR government services business, KBRwyle, has been selected as one of thirteen contract gainers by NASA to study and assess the growth potential of the commercial enterprises in low-Earth orbit (LEO). The company will also be responsible for studying the future prospects of the International Space Station (ISS).

Per the deal, KBRwyle will evaluate market opportunities and figure out ways to make LEO accessible. Also, it will analyze how to create higher market demand for commercial and government use of LEO platforms and capabilities. Revenues associated with the contract will add to the backlog of the company's Government Services segment.

Meanwhile, KBRwyle will help NASA on the role of government and space centers in the development and growth of commercialization in LEO. Additionally, it will deal with specific industry concepts including the viability of habitable platforms in the space station and separate free-flying structures.

The move underscores KBR's efforts to earn high-end and differentiated government services work. KBRwyle has been serving U.S. space exploration for the past 50 years. It has supported ISS for design, construction and crewed operations for almost 18 years. Also, KBRwyle operates at 11 NASA centers and facilities, and supports work in the areas of space technology, aeronautics, science, as well as human exploration and operations.

Notably, shares of KBR have broadly outperformed the industry in a year's time. Its shares have gained 12.9% compared with the industry's growth of 3.6% in the said period, owing to ongoing contract wins, acquisition of SGT, consolidation of acquired entities in the Aspire Defense program and robust organic growth.

Extensive Focus on Winning Contracts - A Major Growth Driver

The contract with Nasa reflects KBR's ability to cash in on big government projects for driving incremental revenues. The company's backlog level of $13.5 billion (as of Jun 30, 2018) highlights its underlying strength. About 80-85% of the backlog represents Government Services work. 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 the above factors will ultimately help in margin expansion, considerably de-risking its business.

Our Take

We believe that the recent move will further boost revenues in KBR's Government Services segment. The segment, accounting for more than 68.5% of the total revenues, has been performing pretty well of late.

Notably, during the second quarter of 2018, revenues increased due to 11% organic growth of the Government Services business. Ongoing 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 led to the growth. 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.

KBR expects growth across all its key markets in the United States, U.K. and Australia, driven by continued opportunities across the lifecycle of projects.

Zacks Rank & Other Stocks to Consider

KBR currently sports a Zacks Rank #1 (Strong Buy). Other top-ranked stocks in the Zacks Construction sector include Comfort Systems USA, Inc. FIX , Gates Industrial Corporation plc GTES and Jacobs Engineering Group Inc. JEC . While Comfort Systems and Gates Industrial sport a Zacks Rank #1, Jacobs carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Comfort Systems' earnings surpassed the consensus estimate in three of the trailing four quarters, delivering an average positive surprise of 11.2%.

Gates Industrial's 2018 earnings are expected to increase 42.2%.

Jacobs surpassed earnings estimates in each of the trailing four quarters, resulting in an average positive surprise of 15.4%.

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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 Nasdaq, Inc.

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

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