KBR Clinches FMSO Contract From UK MOD In The Middle East

KBR, Inc. (NYSE:KBR) fortified its Government Service business segment by securing a Facilities Management Services Operations (FMSO) contract from the UK Ministry of Defence (MOD). Per the contract, the company will provide a wide range of hard as well as soft facilities management services across MOD's operational estates in the Middle East.

Revenues related with the project will be booked as unfilled orders in Government Services Business Segment backlog in third-quarter 2017.

The FMSO Contract

Per the contract, KBR will offer operating as well as maintenance services for existing infrastructure assets across MOD’s operational estates including locations such as Afghanistan, Iraq, Oman, Bahrain and UAE. The company is expected to execute the work in three years with related revenues of $48 million, with an option to extend the time frame by up to two years for a maximum value of $80 million.

KBR will also provide real life support services including catering, laundry, cleaning, pest control and waste management services. This apart, the company will offer services like reprographics, grounds maintenance as well as government furnished equipment servicing and maintenance. With this contract, KBR will become the sole supplier of facilities management services to the UK MOD’s deployed operations.

Major Contract Wins

Some of the notable contracts clinched recently by KBR’s Government Services business, KBRwyle, includes a deal worth $52 million from Federal Aviation Administration (FAA) and a base operating support services deal worth $91 million from the Naval Facilities Engineering Command (NAVFAC) Atlantic. Further, KBR secured another contract worth $441 million for base operations support services by NAVFAC Atlantic.

Existing Business Scenario

Presently, KBR is banking on the strength of its Government Services businesses to optimize growth potential. The company remains optimistic about its prospects, primarily driven by lucrative contracts from the U.S. military and the new work wins from the UK Ministry of Defense.

Further, the company anticipates growth across all its key markets in the United States, UK and Australia, backed by continued opportunities across the lifecycle of projects. The company remains bullish that the present economic conditions in the Middle East, particularly in Iraq and Eastern Europe will offer lucrative prospects for its government business.

Despite these positives, KBR’s business is being affected by the uncertain global political and economical conditions. Current volatility in the oil and gas markets, with oversupply continuing to strain the prices and spending levels, will hurt the company’s projects and orders. The company’s stock has yielded an average return of 16.7% in the past one year, underperforming the industry’s average gain of 32.8%.

Moreover, the Zacks Rank #4 (Sell) company’s Government Services business in UK is vulnerable to the uncertainties associated with the Brexit, as the business has a 20-year contract with the Ministry of Defense. Moreover, reduction in capital expenditure by key clients and currency fluctuations are fast eroding backlogs which is expected to hurt operational results. Such headwinds do not bode well for the company’s operations in the quarters to come.

Stocks to Consider

Some better-ranked stocks from the same space include Thor Industries, Inc. (NYSE:THO) , Owens Corning Inc (NYSE:OC) and Potlatch Corporation (NASDAQ:PCH) . While Thor Industries and Owens Corning sport a Zacks Rank #1 (Strong Buy), Potlatch Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thor Industries has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 11.9%.

Owens Corning has outpaced estimates in the preceding four quarters, with an average earnings surprise of 20.2%.

Potlatch Corporation has surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 41.2%.

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