Analyst Warns Of 'Increased Uncertainty' Related To KBR's New Awards; Downgrades To Hold

Johnson Rice & Co. has downgraded KBR, Inc. KBR to Hold from Buy, citing "increased uncertainty" around new awards.

Analyst Martin Malloy noted that KBR may not win the EPC (engineering, procurement and construction) contract for the Tangguh LNG train 3. Notably, KBR was part of a consortium that built the first 2 LNG trains at Tangguh.

"As a result of not winning several major potential EPC contracts over the past few quarters and with uncertainty over the timing of when the Magnolia LNG project will move to construction we believe there is risk for the backlog to continue to decline over the next several quarters," Malloy wrote in a note.

Related Link: Goldman Upgrades KBR From Sell To Neutral Amid LNG Catalysts

The analyst, who cut the price target on the stock by $2 to $17, also warned there could be downside risk to his FY17 EPS which already represents a decrease from FY16.

KBR maintained FY16 EPS guidance of $1.20 to $1.45 and the analyst too maintaining our FY16 and FY17 EPS estimates of $1.25 and $1.10, respectively. Street expects earnings of $1.31 a share for 2016 and $1.25 a share for 2017.

At the end of the first quarter, total backlog was $12.0 billion, down from $12.3 billion in the fourth quarter of 2015. Malloy highlighted that KBR's backlog fell 21 percent from the end of second quarter of 2015 to the end of first quarter of 2016 as Government has increased from 48 percent of total backlog to 58 percent of total backlog.

At time of writing, shares of KBR fell 4.05 percent to $14.93.

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Posted In: Analyst ColorEarningsNewsGuidanceDowngradesPrice TargetAnalyst RatingsTrading Ideasjohnson rice & co.Martin Malloy
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