UPDATE: MKM Partners Upgrades KBR, Inc. (KBR) to Buy
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(Updated - November 21, 2016 10:35 AM EST)
MKM Partners upgraded KBR, Inc. (NYSE: KBR) from Neutral to Buy with a price target of $21. Analyst Daniel Scott highlighted the company's pivot into more government services and technology offerings.
"We are upgrading the shares of KBR to Buy from Neutral and raising our price target to $21/share from $15/share. We believe the company's ongoing pivot into more government services and technology offerings and away from hydrocarbon exposure warrants a re-rating of the valuation methodology. We expect the outlook for new awards in government services, technology, and particularly aerospace/defense work to improve under a Republican administration," said Scott.
The analyst added, "With the work-off of two large LNG projects and the drop in oil prices from $100/barrel two years ago to under $50/barrel now, KBR needed to refocus its efforts in other end markets or face an earnings cliff as they failed to win several large awards the last two years in downstream energy. Ammonia had been a strength, but was later cycle. Reverting somewhat back to its post-Halliburton (HAL, Not Rated) spin-out roots, new management last year began the process of emphasizing government services and technology. This was accelerated with the recent acquisitions of Wyle and HTSI. We expect these businesses to contribute over $1.2 billion to revenues in 2017. Furthermore, we expect the company to maintain a disciplined approach to risk management in future projects in its Engineering & Construction segment, with limited appetite for fixed-price contract structures."
Shares of KBR, Inc. closed at $16.25 yesterday.
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