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About KBR

I spent a portion of my first year of college at an Air Force base just west of the town of Grand Forks, North Dakota.

Yeah, I’m afraid you read that right.

Believe it or not, I miss those times dearly, as they were practically nothing but filled with adventure and peace.

I remember days when I would pull up to the base’s gate, show an armed guard my credentials, drive through each winding nook and avenue to get to my accounting class in sub-zero-degree temperatures, dreading the walk out of my car into the tundra, with the skies fading gray as early as 4:00 PM (sorry, I meant 16:00), leaving class at around 18:00 only to greeted by even more bitter winds, and pitch-black terrain. Despite these factors, sometimes I’d truly relish in one of the perks of being basically in the middle of nowhere, with little to no city lights in the area, as I was awarded the opportunity to stargaze, with the North Dakota skies being so clear that I could see an airplane’s beacon light (bottom red light) intermittently pulsating at 37,000 feet.

Say what you want about North Dakota and how boring and flat the landscape is, but the sights at night and the picturesque regions of the state are ones I long for, and when recalling the relationships I developed in the region and all of the priceless memories, without this seemingly obscure Air Force base, I guarantee that I wouldn’t be the person that I am today, all for the better.

And the company in question today, KBR Incorporated, might just have played a role in putting all of these memories together, being that this storied American government contractor derives a sizable bulk of its revenues through offering infrastructure and engineering-centric services for the United States government, also serving national enterprises at a smaller but still meaningful level. 

More specifically, Houston, Texas-headquartered KBR helps the Government and private sector operators with designing and building out new air force bases, space stations, training devices, technology infrastructure and systems therein, and widespread logistics and housing and dining support for military personnel, among other things, including some general project work and consulting services. In terms of operations within the confines of the private sector, KBR has a track record of serving mission critical industrial clients such as Shell, Chevron, ExxonMobil, Saudi Aramco, Boeing, Rio Tinto, General Electric and more, assisting its private sector customers with services similar to those that it offers the United States government, such as designing and constructing facilities (many refineries, in the case of KBR) along with other analytics and consulting services to ensure each of these entities are producing quality products out of these facilities in as safe a manner as possible. Clearly, the firm has a more industrial focus, mainly serving companies specializing in oil and gas, chemicals, mining, aerospace and other infrastructure-focused enterprises.

I don’t even need to begin emphasizing just how important KBR is, because I pretty much already have.

One of the last things I’ll say before going through the company’s financials is that since the company’s revenues are fairly reliant on its relationship with the United States government and agencies within, focusing heavily on the Country’s military branches, it is hardly any secret that in more respects than none, when things aren’t so rosy geopolitically, they sure are for KBR. Primarily, as tensions rise, the Government is going to do what it does best and spend taxpayer dollars, in this context towards general defense expansion and with that, infrastructure projects in and around the United States, not to also mention space programs being adamantly pursued by NASA and other US agencies, all leading me to initially believe that this company is, more likely than not, recession resistant, as war times hardly give a hoot about economic times.

Plus, the company has recently closed what I deem to be a highly strategic acquisition of another focused, technical operator by the name of LinQuest, purchasing the company for $737 million, which, upon conducting my research already seems like a highly value accretive purchase on the part of KBR, especially when it comes to the vast and deep possibilities stemming from the further integration of artificial intelligence across its company.

It is also worth noting that in recent years KBR has seemingly been shifting from higher-risk commercial construction operations towards a more streamlined, less inherently risky consulting and design services.

Let’s now configure ourselves to become more knowledgeable regarding this company’s core financial figures with the mission of determining whether or not KBR’s stock (NYSE: KBR) is worth strongly considering investing in for the days, weeks, months, years and decades ahead.

KBR’s stock financials

In getting this show on the road, it can initially be found that KBR has a market capitalization of $8.97 billion, an associated stock price of $67.42, a price-to-earnings (P/E) ratio of 45.45 and issues an annual dividend of $0.60 to its shareholders. 

When considering these initial facts and figures, I usually find a sort of relative valuation benchmark to be of the greatest importance, as sure, some could argue that a company’s market capitalization is an important figure, but at the end of the day it is just a mere measure of how large a company is, determined solely by finding the product of its number of shares outstanding and its prevailing share price. 

I’ve basically learned nothing.

However, when it comes to the company’s valuation, I’d say there’s something to be gleaned, as being that its price-to-earnings ratio is more than double the traditionally held fair value P/E benchmark of 20, one could instantly assert that KBR’s stock price has perhaps gotten a bit ahead of itself with respect to its actual, intrinsic valuation, which, given the little information we know thus far, does indeed appear to be the case. 

Of course, this is far from being the end of this discussion, since digging deeper into this company’s books and margins can lend us a helping hand in gaining more clarity surrounding the company’s real and potential valuation. For instance, if the company has been growing its revenues over the last few years at a significant rate, this alone could justify “overpaying,” or paying a premium for an ownership stake in the company’s corporate pie.

Give me a second and I’ll check on this, but before I do, let’s peer over towards the condition of the company’s balance sheet, where we can find that KBR’s board of directors are responsible for deploying and responsibly stewarding just over $5.5 billion in terms of total assets as well as $4.1 billion in terms of total liabilities. In doing some research with respect to its outstanding liabilities, KBR has a solid chunk of long-term liabilities, which is certainly better than having a lot of debt due for repayment in the short-term, but one could still reasonably say that KBR’s total liabilities (yes, including its long-term) are a bit weighty. Nevertheless, in doing some more digging and putting some brain cells together and outputting some common sense, this is an industrial company that deals with a lot of equipment (and with that, lease obligations) and maintenance thereof, hence the higher amount of total liabilities. Nevertheless, when putting this into the eggshell with the fact that its aggregate assets outweigh its aggregate liabilities, I am not going to lose any sleep over the company’s balance sheet breakdown for the time being.

In terms of the company’s income statement, KBR’s annual revenues stemming off of 2019 have been generally looking upwards, with the company reporting revenues to the tune of $5.6 billion in 2019, $5.7 billion in 2020, $7.3 billion in 2021, $6.5 billion in 2022, its latest reported figure of just under $7 billion, in 2023. The relative peak shown in 2021 can be best attributed to a few factors, including the post-COVID boom in business and the government contracts it acquired during this era as well as the company closing some previous acquisitions and naturally boosting its top-line in the process.

The primary positive here is that they’ve since stabilized back to their subtle yet well-defined growth trajectory, dropping a bit after this boom during extraordinary times but since coming back down to this planet and rerailing onto a path of more steady and sustainable growth, and given the current state of national and geopolitical affairs, it is difficult to imagine KBR experiencing a drop in revenues in the next couple of years, at least.

Onto the company’s cash flow statement, KBR’s total cash from operations during this exact same time period have been, on the net, consistent, carving out a fairly narrow range of a relative low of $256 million in 2019 and a high of $396 million, per the company’s report in 2022. This range inherently tells me that the company has done a fine job in generating a consistent amount of cash through its extensive operations, even though they aren’t all that sizable with respect to their respective revenues.

Even more, this hints to me that KBR’s net profit margin isn’t all that massive, which would track given the industrial nature of this company and the customers it is entrusted to serve, inherently meaning it has plenty of costs to weigh and constantly control.

KBR’s stock fundamentals

Speculation aside, as it is touted on Charles Schwab’s platform, KBR’s net profit margin stands at a lowly 2.84%.

One of the good things about writing hundreds upon hundreds of previous stock analysis articles across a variety of companies and a variety of industries is that in my experience I’ve found it to be the overwhelming case that any company with an extensive consulting bone in its corporate body tends to not have the highest margins, as evidenced in past articles on the global consulting giant Accenture and the military-focused consulting agency that goes Booz Allen Hamilton.

Good truth or bad truth, I just want the facts.

Still, KBR’s net profit margin seems inordinately low, in most simple terms, as it appears as though the firm is spending a lot in terms of obtaining its revenues and following through on its contracts, however, in being a bit more forward-looking, the company has recently announced concrete plans to minimize many of its more crushing operating costs, specifically within its government solutions segment (which makes sense because it is just straight up challenging to have fat margins in the veil of broad-based consulting) through cost reductions. 

If executed properly, KBR’s net profit margin has a great chance of becoming more attractive, because 2.84% is frankly for the birds, and no prospective nor current shareholder should feel thrilled about this margin.

Given the progress it has made with its debt, however, particularly with the company garnering favorable terms in terms of restructuring some of its debt(s) and buying itself some time until maturity, plus its storied record of strategically integrating technology into its business(es) in order to better streamline operations for the long haul, I have enough confidence that KBR and its executives will meaningfully beef up its net profit margin over the years preceding and following 2030.

Should you buy KBR stock?

In all honesty, I like this company and I like its stock, but I really do not like its current valuation.

Too much sugar is baked into this KBR cake, and although its annual revenues have been growing, they have not been growing that quickly, and one must also ponder the facts that the company’s balance sheet runs slightly hot on the liability side of things (again, this alone doesn’t worry me, but I am just pulling everything together for greater overall context), its cash flows have been low but quite consistent, and even though I am bullish on KBR’s intermediate-to-long-term margin potential, and I also don’t see any sort of slowdown to be incurred by this company in terms of demand for its services, the risk-reward profile is just skewed too far towards the risk side of the equation for me to feel good about giving this company’s stock (NYSE: KBR) a “buy.”

In stringing all of this together, it seems most appropriate to lend KBR’s stock a “hold” rating until its valuation stabilizes, closer to where it ought to be.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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