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Shares of KBR, Inc. Jump 11% After Analyst Upgrades

By Daniel Miller – Oct 5, 2016 at 3:31PM

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Many investors take analyst upgrades with a grain of salt, but investors are definitely optimistic about KBR's future prospects.

KBR is a trusted partner in optimizing customers' operating assets across mutliple industries. Image source: Getty Images.


Shares of KBR, Inc. (KBR -1.43%) -- a global technology, engineering, procurement, and construction company operating in 40 countries -- are moving 11% higher during Wednesday afternoon trading, after multiple analysts upgraded their views on the company and its stock.

So what

On Tuesday Deutsche Bank, in a note to investors, announced an upgrade from hold to buy on KBR stock, moving its stock price target from $14 to $16. Analysts at William Blair also felt strongly enough about the company's near-term prospects to raise their fiscal-year 2017 earnings estimates by a nickel, to $1.15 per share.

That positive sentiment was echoed by analysts at Johnson & Rice who believe two projects will provide catalysts for the stock price: the acquisitions of Wyle and of Honeywell Technology Solutions. Johnson & Rice went a bit further, raising KBR's stock price target up to $18.

Now what

These upgrades were definitely a positive sign for investors who had just finished digesting the company's reduced guidance for 2016 -- thanks to increases in costs to complete engineering, procurement, and construction (EPC) projects. But KBR has already announced its intention to exit the fixed-price EPC business in favor of new power projects, and this instance of increased costs hindering profitability should be the last, as it winds down its backlog of orders.

As the company exits the fixed-price EPC business, it should have much more predictable and stable earnings and cash flow in 2017 and beyond. This will be a welcome relief to investors, and should help convince the market to reward the company with a higher price-to-earnings ratio, due to its less-risky business -- always a positive scenario for investors.

Daniel Miller has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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