KBR Gains More Work For Hail & Ghasha Sour Gas Project

KBR, Inc. (NYSE:KBR) recently announced that it was won a Project Management Services (PMC) contract from OMV Offshore Abu Dhabi GmbH. This contract comes close on the heels of a PMC contract from Occidental of Abu Dhabi Ltd for executing the engineering phase of the same project.

Occidental and OMV Offshore Abu Dhabi GmbH are jointly managing the project on behalf of Abu Dhabi National Oil Company ("ADNOC"). ANDOC is in charge of providing the Front-End Engineering Design (FEED) phase of the Hail & Ghasha Development project in Abu Dhabi. On completion, the Hail & Ghasha Project, arguably one of ANDOC’s major projects, is likely to produce about 1 billion cubic feet of sour gas per day.

ADNOC aims to deliver more sustainable and economic gas supply for the project. Securing this project is in line with KBR’s strategy to establish strong local partnerships for executing greenfield project developments profitably. The company is focusing on boosting its stronghold in the UAE by establishing itself as leading project management consultant there.

Revenues associated with the PMC contract have been undisclosed but it will be booked into KBR’s Engineering and Construction segment’s backlog of unfilled orders for the second half of 2017. Encouragingly for KBR, its E&C segment is witnessing modest recovery, thus adding to strength. Increasing portfolio of smaller projects, services, program management and maintenance contracts are fueling the growth of this segment.

Despite solid execution in E&C segment and growth in high end and differentiated government services work, KBR’s shares have had a dismal run on the bourse over the past six months. The stock has lost 9.1% in comparison to the industry’s steeper decline of 16.7%.

Volatility in the oil and gas markets along with oversupply continues to strain the prices and spending levels, hurting the company’s prospects. Also, reduced capital expenditure by key clients and currency fluctuations are fast eroding backlogs. Additionally, restructuring of its business lines to focus on core operational strengths and non-project payments continue to exert pressure on the Zacks Rank #3 (Hold) company’s profits in the near term.

Stocks to Consider

Some better-ranked stocks in the sector are TopBuild Corp. (NYSE:BLD) , Owens Corning Inc. (NYSE:OC) and Toll Brothers Inc. (NYSE:TOL) . While TopBuild and Owens Corning sport a Zacks Rank #1 (Strong Buy), Toll Brothers carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

TopBuild has a positive average earnings surprise of 10.4% for the last four quarters, having beaten estimates all through.

Owens Corning has excellent earnings beat history, having surpassed estimates every time over the trailing four quarters. It has an average positive surprise of 20.2%.

Toll Brothers has a positive average earnings surprise of 1.1% for the last four quarters, having beaten estimates twice over the last four quarters.

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