Here's Why You Should Add KBR Stock To Your Portfolio Now

KBR, Inc. (NYSE:KBR) has been benefiting from high end and differentiated government services work, strong margin performance, along with proficient technology and consulting services. Shares of the company have gained 2.4% in the past six months against its industry’s 4.8% decline. Encouragingly, the company’s earnings surpassed the Zacks Consensus Estimate in five of the past seven quarters.

Meanwhile, earnings estimates have been upwardly revised over the past few weeks, suggesting that sentiments on KBR are moving in the right direction. Earnings estimates for 2018 and 2019 have moved up 4.1% and 1.2%, respectively, over the past 30 days. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve deeper into the other factors that make this stock a solid pick.

What Makes KBR a Solid Bet?

Strong Growth in Government Services & Technology Businesses: KBR's revenue momentum is underpinned by industry-leading organic growth from Government Services and Technology businesses. The company’s Government Services segment, accounting for almost 73% of the total revenues, has been performing pretty well. Presently, the company is banking on the strength of Government Services businesses to optimize its growth potential.

Organically, sales grew 12% in the third quarter, following a 11% increase in both the second and first quarter in 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 the 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.

Meanwhile, KBR’s Technology segment, contributing 6.3% to the total revenues, has generated 35% sales growth, on an organic basis, in the third quarter. The company continues to experience strong demand for petrochemical, refining and agricultural technologies, driven by availability of competitively priced feedstock combined with increasing global development, expanding consumer demand and increasingly stringent environmental policies.

Strong Backlog & Upbeat Views: KBR’s backlog level of $13.5 billion (as of Sep 30, 2018) highlights its underlying strength. Notably, more than 80% of KBR’s 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 its other projects. The company believes that this will ultimately help in margin expansion and considerably de-risking the business. Despite a slow backlog in Hydrocarbons, KBR generated 1.1x book-to-bill in the third quarter, reflecting faster turnaround projects in Government Services.

Meanwhile, buoyed by strong year-to-date performance, KBR raised its full-year 2018 guidance. The company, which shares space with Fluor Corporation (NYSE:FLR) , Jacobs Engineering Group Inc. (NYSE:JEC) and Quanta Services, Inc. (NYSE:PWR) in the Zacks Engineering - R and D Services industry, currently expects adjusted earnings per share in the band of $1.45-$1.55 from $1.45-$1.50 expected earlier.

Strategic Acquisitions: KBR has a penchant for acquisitions and strategic alliances, in order to bolster inorganic growth and expand market share. In April 2018, it completed SGT and Aspire acquisitions. The company recorded double-digit organic growth and higher margins in each of the second as well as the third quarter of 2018, supported by these two acquisitions. It remains optimistic about the prospects of both the buyouts, mainly on account of increased government spending across space and defense. Last year, the company completed several strategic acquisitions, including two established and highly technical government services companies. It also acquired a specialty welding and turnarounds company through Brown & Root joint venture.

Superior ROE: KBR’s return on equity (“ROE”) supports its growth potential. The company’s ROE of 13.4% compares favorably with the industry’s average of 11.2%, implying that it is efficient in using its shareholders’ funds.

Solid VGM Score: KBR has a VGM Score of A. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2, make solid investment choices.

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