KBR, Inc. KBR is benefiting from its diversified service portfolio, which includes the Government Solutions (GS) segment and the Sustainable Technology Solutions (STS) unit. The GS segment has seen steady growth, supported by increasing defense budgets and demand for advanced technologies, while the STS unit has gained from higher activity in energy transition and technology-driven projects. Strategic acquisitions and alliances have also played a role in strengthening the company’s market position across key sectors.

Shares of this global engineering, construction, and services firm have gained 4.9% in the past year compared with the Zacks Engineering - R and D Services industry’s 9.5% growth. Although the shares have underperformed its industry in the said period, the company’s strong liquidity and robust backlog provide a solid foundation for future growth. KBR's focus on sustainable solutions, technology-driven services, and long-term contracts continues to support its performance.

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What Makes the Stock Appealing?

Strength in the GS Business: KBR’s GS business continues to drive growth, benefiting from strong demand in defense, space, and military sectors. The segment is supported by long-term, low-risk contracts and strong international performance. With a focus on emerging technologies such as cyber-science, AI, and space, the GS segment plays a critical role in KBR’s future success. In the first nine months of 2024, GS revenues rose 6% year over year to $4,273 million. This growth was driven by high-end defense engineering, classified intelligence, and international programs.

As of September 2024-end, 79.1% of KBR's total backlog consists of work within the GS business, underscoring the segment's significant role in the company's overall strategy. This dominance is further supported by strong bookings driven by favorable Department of Defense budget cycles, along with a solid performance in the international market.

During the third quarter of 2024, KBR's GS segment reported strong growth, with the trailing 12-month book-to-bill ratio for the segment at 1.1x. With robust bookings and a solid contract base, the GS business positions KBR for sustained growth and continued success well into 2024 and beyond.

Solid Backlog Supports Growth: KBR’s solid backlog and option level of $22.12 billion at the end of the fiscal third-quarter 2024 highlight its underlying strength. The company received $3.3 billion in bookings and options in highly strategic areas, maintaining a trailing 12-month book-to-bill ratio of 1.1x.

In the first nine months of 2024, total revenues increased 8% year over year to $5,620 million. The upside was primarily driven by growth in high-end defense engineering, classified intelligence, and international programs within the GS business. The STS business also saw increased revenues from technology sales, engineering, and professional services. Additionally, $41 million in revenues from the LinQuest acquisition contributed to this increase.

Looking ahead, KBR expects continued broad-based growth across both segments. Primary growth drivers include high-end and differentiated government business work, strong margin performance, and technology and consulting services.

Strategic Acquisitions: The company focuses on strategic acquisitions to strengthen its market position and expand its capabilities in key sectors. These acquisitions help enhance its service offerings and align with evolving market demands.

On Aug. 30, 2024, KBR acquired LinQuest for $739 million in cash, net of cash acquired. LinQuest, an engineering, data analytics, and digital integration firm, provides advanced technology solutions in space, air dominance, and connected battlespace missions. The acquisition is aimed at accelerating the company’s growth in military space, interoperability, and digital engineering, further expanding its capabilities in these high-demand areas.

Stable Liquidity Enhances Shareholder Value: KBR’s stable balance sheet position helps it enhance its shareholders’ value. At the fiscal third-quarter end, KBR’s cash and cash equivalents were $462 million, up from $304 million at 2023-end. It also has a $1 billion revolving credit facility.

Long-term debt was $2.56 million at the fiscal third quarter of 2024-end, up from $1.8 million at 2023-end. Although the long-term debt is slightly higher compared with the 2023-end figure, the company has sufficient funds to meet the short-term obligation of $46 million.

During the first nine months of fiscal 2024, KBR returned a capital of $226 million to its shareholders through $167 million of share repurchases and $59 million of regular dividends.

KBR Trading at a Discount

The company is currently trading at a discount to the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis.

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Why is KBR Stock Still a Buy?

Despite underperforming its industry in the past year, KBR’s strong position in defense, space, and military sectors, strategic acquisitions and a solid backlog support its growth prospects. The company’s focus on emerging technologies and high-margin government contracts positions it for continued success. With a stable financial position and strong bookings, this Zacks Rank #2 (Buy) company is well-positioned for future growth, making it an appealing stock for investors.

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It delivered a trailing four-quarter earnings surprise of 21.5%, on average. Shares of STRL have gained 46.5% in the past six months. The Zacks Consensus Estimate for STRL’s 2025 sales and earnings per share (EPS) implies an increase of 7.3% and 8.1%, respectively, from the prior-year levels.

AECOM ACM presently sports a Zacks Rank of 2. ACM delivered a trailing four-quarter earnings surprise of 5.2%, on average. The stock has gained 22% in the past six months.

The Zacks Consensus Estimate for ACM’s fiscal 2025 EPS indicates an increase of 12.8% from a year ago.

Comfort Systems USA, Inc. FIX currently sports a Zacks Rank of 1. FIX delivered a trailing four-quarter earnings surprise of 14.7%, on average. The stock has gained 38.4% in the past six months.

The consensus estimate for FIX’s 2025 sales and EPS indicates an increase of 7.9% and 20.8%, respectively, from a year ago.

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