Goldman Upgrades KBR From Sell To Neutral Amid LNG Catalysts

Goldman Sachs’ Jerry Revich upgraded the rating for KBR, Inc. KBR from Sell to Neutral, while raising the price target from $12 to $16. The analyst noted that the company’s turnaround strategy had started yielding results.

KBR’s shares have declined 18 percent since December 7, 2015, when they were added to the Sell List. This compares with a 2 percent decline in the S&P 500 over the same period.

Positives In The KBR Story

Analyst Jerry Revich noted that while the outlook for both LNG and nitrogen apex has deteriorated in recent months, KBR’s turnaround strategy has started yielding results with the company posting robust margins in 4Q on its existing portfolio and legacy projects.

If KBR receives the pending Pemex cash flows, it will realize net cash inflows of $365 million. The net cash flow will add $0.12 per share to the company’s 2H17 EPS and $0.28 to its 2018 EPS, assuming the funds are used for share repurchases, Revich mentioned.

KBR has already won the appeals court award and the funds from PEMEX are in an escrow. Apart from the challenging global energy company returns, KBR may find it difficult to replace its Australia LNG projects rolling off in 2017. The analyst further added that this may result in reduced operating income for the company.