The slippery slide in the price of oil is also pulling down the outlook for related companies such as Texas-based engineering and construction company KBR Inc. (KBR.N). Oil companies are cutting down on capital expenditures as projects become less profitable. Chevron, for example, has already projected that it will be cutting capex for 2015, as have a host of other oil companies. Over at KBR, Chevron accounts for almost a quarter of revenues. Let’s dig down further.
KBR serves a host of industries, including energy, hydrocarbons, power, minerals and civil infrastructure. Analysts following the company have lowered estimates, but may not have lowered them enough. Based on the negative StarMine Predicted Surprise of 6.3%, it looks like KBR may still miss even the lowered estimates.
Source: Eikon/StarMine
Stalled momentum
In the chart above, the blue dot represents KBR and the yellow dots, its peers. As you can see, on both value and momentum metrics, the company scores lower than most of its peers. The bottom left hand quadrant represents companies that have poor value and momentum metrics as measured by StarMine, while the top right represents companies that score strongly. While many of its peers seem to have poor momentum, they seem to be cheap based on our valuation metrics. However, KBR does not seem to be particularly cheap.
Source: Eikon/StarMine
It’s all relative
Despite the stock price falling over the last six months, the F12M P/E for KBR is 15.3 — still higher than its five-year historical median. Usually, falling stock prices may make companies appear cheap, but for KBR, the decline in earnings has been more dramatic, making the stock still seem expensive relative to its historical levels.
Source: Eikon/StarMine
Opinion survey
There are now more hold and sell recommendations for the stock than there were 90 days ago, highlighting analysts’ pessimism. They have lowered earnings estimates for the quarter by one cent to 21 cents per share. The StarMine SmartEstimate is even lower at 20 cents per share, and there is a five-star analyst who has an estimate of 19 cents per share.
CEO Stuart Bradie said recently that KBR needs to “up its game” and stressed that the turnaround may take longer than expected and would not be in a “Wall Street-type time frame.” It looks like the company may be constructing an outlook for weaker than expected earnings when it reports quarterly results.
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