KBR Inc

We will discontinue analyst coverage of KBR on or about June 12. 

We provide analyst research and ratings on over 1,500 companies globally and periodically adjust our coverage according to investor interest and staffing.

BLANK PAGE

We are lowering our fair value estimate to $57 per share from $61 per share after KBR reported first-quarter results, driven by our more muted revenue growth projections, partially offset by the time value of money. Management maintained its 2026 guidance and continues to anticipate full-year revenue of $7.90 billion to $8.36 billion and adjusted EPS of $3.87 to $4.22.

We project compound annual organic revenue growth of roughly 5.5% through 2030, fueled by a robust backlog in the government solutions sector as well as opportunities arising from growing demand for energy transition and sustainability solutions in the sustainable technology solutions segment.

We project that KBR's operating margins will expand to around 10.5% from 7.3% over the next few years, reflecting benefits from recent cost-reduction initiatives, as well as a shift in the mix toward relatively higher-margin government services sales. We assume a 9.4% weighted average cost of capital and a 25% long-run effective tax rate in our model.

We assign KBR a no-moat rating. The company has transformed its portfolio by shifting away from more cyclical and lower-margin end markets (including lump-sum engineering, procurement, and construction projects), which we expect to lead to more stable results. Nonetheless, although we see some moat-forming potential in certain areas of the business from a qualitative perspective, we forecast KBR to earn average returns on invested capital, roughly in line with its cost of capital throughout the business cycle. As a result, we believe KBR lacks an economic moat.

KBR is a leader in the LNG and fertilizer industries, having been involved in the design and construction of roughly a third of the global LNG production and roughly a third of the world’s ammonia plants. KBR’s unique portfolio of technologies and record of completing large, complex projects are meaningful intangible assets that could help the company forge an economic moat in certain niches.

Additionally, there are switching costs in parts of its business, including government services and maintenance, where long-term contracts generate a relatively stable cash flow. For instance, KBR was awarded an 18-year privatized financing initiative contract with the UK Ministry of Defence for the acquisition and maintenance of 38 new aircraft. The company also has strong relationships with government agencies in the US, such as NASA, with which KBR has had a contract since the beginning of the space program.

However, despite this niche potential, KBR has to contend with high cyclicality, significant customer power, and event risk (such as legal disputes and cost overruns), which could be caused by a number of factors, including labor shortages, subcontractor performance, and inclement weather. These factors have historically made it difficult for KBR to maintain consistently attractive returns on invested capital throughout the economic cycle, and we do not expect that to change over our explicit forecast horizon.

KBR’s sustainable technology solutions segment is well positioned to benefit from growing demand for solutions that address energy efficiency and energy transition.

The acquisitions of Wyle, HTSI, SGT, and Centauri have derisked KBR’s portfolio and shifted it toward relatively stable and high-margin government services work.

There is room for margin expansion in both segments, driven by cost reductions and mix shift to higher-margin differentiated solutions work.

KBR faces high uncertainty, as volatility in oil and natural gas prices could lead customers to delay, suspend, or cancel projects.

In 2025, KBR derived 57% of its revenue from US government contracts and 9% from UK government contracts. Declines in government spending could have a significant impact on the firm’s earnings.

KBR has been the subject of several controversies, including bribery charges, billing disputes with the US Army, and a number of other lawsuits over its involvement in war zones and politically unstable regions.