Morningstar | KBR Delivers Impressive Growth in Government Solutions and Technology Solutions; Raising FVE
We bumped up our fair value estimate for KBR to $22 from $21 per share after the no-moat firm delivered impressive 29% year-over-year sales growth in the first quarter. The increase is due to slightly more optimistic projections for full-year 2019 revenue. Management remains upbeat about the outlook for the rest of the year and reaffirmed its full-year adjusted EPS guidance range of $1.58 to $1.73.The government solutions segment posted a 22% organic increase in sales from the same prior-year period (44% including the impact of the SGT acquisition). Furthermore, KBR recently announced that it was awarded three of the seven key LOGCAP V contracts to provide logistics support to the U.S. Army in Afghanistan as well as the U.S. European Command and Northern Command. We believe the LOGCAP V win (which the firm has not yet booked into its backlog), coupled with KBR’s already strong $11 billion government solutions backlog, will help fuel solid growth in the segment. Government solutions now composes over 80% of KBR’s backlog, and we think that the mix shift will decrease the overall risk of the firm’s portfolio because many of its government contracts are long term and generate relatively more predictable cash flows than traditional engineering and construction activities.
Technology solutions also delivered notable 48% year-over-year revenue growth, as demand for refining, petrochemical, and agricultural technologies remains robust thanks to low feedstock prices. Energy solutions continued its downward trajectory, as sales decreased 9% compared with the first quarter of 2018, but we think the segment is nearing an inflection point as we anticipate a ramp-up in new LNG projects over the next few years to meet growing demand.
KBR provides services and technologies across the asset and program life-cycle within the government services and hydrocarbons industries. The company has three segments: Government Solutions, which provides life-cycle support solutions to defense, space, aviation and other programs and missions for military and other government agencies; Technology Solutions, which combines technologies, equipment and catalyst supply, digital solutions and associated knowledge-based services into a global business for refining, petrochemicals, inorganic and specialty chemicals; and Energy Solutions, which provides life-cycle support solutions across the upstream, midstream and downstream hydrocarbons markets.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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