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TheStreet Open House

Why Jefferies Cut Its Price Target on KBR Inc

Stock quotes in this article: KBR

NEW YORK (TheStreet) -- Jefferies reiterated KBR Inc (KBR) as a "buy" but lowered its price target to $34 from $38.

Analyst Luke Folta said, "KBR reported 4Q results substantially below expectations, and were impacted by several charges (pre-tax total of $79mn). While the 2014 outlook wasn't any brighter, we still see KBR as one of the leading E&C players well positioned in the LNG and Petchem arena, benefiting from unprecedented activity levels."

Last week, the construction and engineering company recorded net income of 18 cents a share compared to 20 cents a share a year earlier.

"Earnings for the quarter were significantly less than anticipated," said CEO Bill Utt in a statement. Fourth-quarter guidance was not given in the third-quarter release.

Revenue tumbled 9.1% year over year to $1.7 billion. Analysts surveyed by Thomson Reuters had forecast revenue of $1.93 billion. This marks the eighteenth consecutive quarter of revenue declines.

Over fiscal 2014, management guides for earnings per share between $1.75 and $2.10. Analyst consensus was for $2.69 a share.

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TheStreet Ratings team rates KBR INC as a Hold with a ratings score of C+. 

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • KBR INC's earnings per share declined by 10.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, KBR INC increased its bottom line by earning $1.54 versus $0.96 in the prior year. This year, the market expects an improvement in earnings ($2.65 versus $1.54).
  • KBR, with its decline in revenue, slightly underperformed the industry average of 2.1%. Since the same quarter one year prior, revenues slightly dropped by 7.0%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry, implying reduced upside potential.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Construction & Engineering industry. The net income has decreased by 10.0% when compared to the same quarter one year ago, dropping from $30.00 million to $27.00 million.

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