Analyst upgrades KBR, citing rising oil prices

Shares of engineering and construction firms jumped Tuesday as an analyst upgraded KBR Inc. and reiterated his "Buy" ratings for three other companies, saying they are benefiting from rising oil prices.

Broadpoint AmTech analyst Will Gabrielski raised his profit estimate for KBR, upgraded the engineering and construction firm to "Buy" from "Neutral" and raised his price target to $21 from $13, implying a more than 25 percent premium from its closing price Friday.

He expects earnings will be $1.66 per share in 2010, up from $1.64 per share. He initiated an estimate of $1.91 per share for 2011.

Analysts surveyed by Thomson Reuters expect, on average, earnings in 2010 to be $1.55 per share and expect profit to be $1.80 per share in 2011.

"Given our positive view on the space and firming oil prices, we believe KBR will perform inline with our bullish outlook on other energy-focused engineering and construction companies as sentiment improves and backlog visibility increases," he said.

He said development of the Gorgon gas fields off Australia and two Saudi projects, the Yanbu refinery and Ras Tanura petrochemical plant, provide "opportunities for significant bookings" in the next six to 12 months.

KBR already has advised investors that competitor Fluor Corp. and military contractor DynCorp International Inc. will play "catch-up" on military work in Afghanistan, Iraq and Kuwait, Gabrielski said.

In addition, he said he is confident that KBR can shift its business from military work in southwest Asia over the next few years.

Gabrielski reiterated a "Buy" rating for Fluor, Foster Wheeler AG and McDermott International Inc. because of their exposure to rising oil prices and visibility on large projects.

Front end engineering and design work "remains robust" and is an indicator of future activity, he said.

Shares of KBR rose 77 cents, or 4 percent, to $17.47 in midday trading. Fluor added $1.16, or 2.7 percent, to $44.77, McDermott rose 65 cents, or 3.3 percent, to $20.37. Foster Wheeler increased $1.02, or 4.3 percent, to $25.03.