(Source: Associated Press/AP Online)
HARTFORD, Conn. - A $2.33 billion energy contract that KBR Inc. announced Monday is less than investors expected, but will still add to the engineering and construction company's earnings, an analyst said Tuesday.
The Gorgon gas field project off the northwest coast of Western Australia is worth 2.7 billion Australian dollars ($2.33 billion) for the Kellogg Joint Venture Group.
KBR is expected to receive $1 billion of that amount, far less than the $3 billion investors expected, Broadpoint AmTech analyst Will Gabrielski said in a note to clients. However, the contract excludes lower-margin construction and procurement and will limit risks in "what should prove to be a very complex project," he said.
Investors reacted strongly Monday, with shares falling 5.7 percent by the end of the day.
"The dollar value of the KBR award of about $1 billion was clearly below consensus expectations for a $3 billion award," Gabrielski said. "As a result, the stock reacted negatively to the headline number, which we believe is completely warranted in the short-run as Gorgon has been presented as THE second half-2009 catalyst for KBR."
He said he did not expect KBR to book procurement work, but the absence of construction was a surprise. However, the absence of booking construction work has a "minimal impact" on operating income over the life of the contract and reduces risk, he said.
"We view this as a positive for longer-term earnings-per share predictability and stability," Gabrielski said.
He said he remains "extremely comfortable" with his 2010 estimate of $1.79 per share and reiterated a "Buy" rating and $29 target.
Shares were unchanged at $22.81 in afternoon trading.
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