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KBR, Inc. (NYSE: NYSE:KBR) experienced a shift in its stock outlook as a TD Cowen analyst moved the rating from Buy to Hold, setting a price target of $72.00.
The decision was influenced by a perceived lack of upcoming catalysts for the stock and potential execution and timing risks.
The analyst noted that following the closure of the Linquest acquisition, KBR's path forward seems less driven by catalysts that could significantly affect the stock in the next six months.
The company's two long-term contracts (LTC) in Saudi Arabia, which are already public knowledge, are not expected to contribute substantially to the short-term services (STS) backlog due to the nature of the project's funding.
Concerns were also raised about the generic risk of project timing delays, particularly mentioned by KBR regarding their energy transition projects. Additionally, a forecasted decline in equity income from Plaquemines in the second half of 2025, which contributed $18 million in the first quarter and accounted for 12% of earnings per share (EPS), poses a challenge for the company. The Saudi LTCs may not be sufficient to offset this expected decrease.
The Government Solutions (GS) segment may also face uncertainties due to the transition in the U.S. Administration, potentially leading to an extended continuing resolution in the budget, possibly through April 2025, and possible changes in military operational tempo services demand. This is particularly relevant as research and services comprise over 25% of KBR's sales.
Lastly, the analyst pointed out that the ramp-up of HomeSafe's GHC contract may encounter hurdles. This is because many incumbent moving firms are choosing not to participate under the new contract, and compliance with the Service Contractor Act is stringent. Moreover, the nature of moves in 2024 has been simpler than usual, which may not be indicative of future trends.
In other recent news, KBR Inc . has reported a robust performance in its second quarter of fiscal 2024 earnings, with a 6% increase in revenue year-on-year and a 13% rise in adjusted EBITDA.
The company has raised its guidance for the year, maintaining revenue expectations between $7.4 billion and $7.7 billion. Additionally, KBR has announced the acquisition of LinQuest Corporation, which is expected to enhance its national security services.
In terms of personnel changes, KBR has appointed Nchacha E. Etta to its Board of Directors. Etta brings over two decades of experience in global finance within the healthcare and consumer products sectors.
On the contract front, KBR has secured significant contracts including an advisory consulting contract from Kuwait Oil Company to develop a renewable energy and green hydrogen masterplan. The company has also been named one of the 11 recipients of a new $43 billion military health support contract.
InvestingPro Insights
In light of the recent analysis by TD Cowen, it's worth considering additional financial metrics and insights from InvestingPro to gauge the investment potential of KBR, Inc. (NYSE: KBR). The company's market capitalization stands at a robust $8.83 billion, reflecting its substantial presence in the industry. Despite concerns over near-term catalysts, KBR has demonstrated a consistent commitment to shareholder returns, having raised its dividend for four consecutive years, and maintaining dividend payments for 17 consecutive years, a testament to its financial stability and investor-friendly approach.
InvestingPro data reveals a Price/Earnings (P/E) ratio of 44.99, which adjusts to a more favorable 27.08 when considering the last twelve months as of Q2 2024. This adjustment suggests a more attractive valuation when factoring in recent earnings. Moreover, the company's PEG ratio during the same period stands at an intriguing 0.15, potentially indicating an undervaluation relative to its earnings growth. On the profitability front, KBR has been profitable over the last twelve months, with net income expected to grow this year, aligning with the positive outlook from analysts.
For investors seeking further analysis and tips, InvestingPro offers additional insights on KBR, including the company's performance metrics and analyst predictions. Currently, there are 13 more InvestingPro Tips available that delve deeper into KBR's financial health and future prospects, accessible at https://www.investing.com/pro/KBR.
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