Shareholders of KBR would probably like to forget the past six months even happened. The stock dropped 27.1% and now trades at $49.79. This may have investors wondering how to approach the situation.
Following the pullback, is this a buying opportunity for KBR? Find out in our full research report, it’s free.
Why Does KBR Spark Debate?
Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.
Two Things to Like:
1. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect KBR’s revenue to rise by 14%, an improvement versus its 8.6% annualized growth for the past two years. This projection is commendable and implies its newer products and services will fuel better top-line performance.
2. Operating Margin Rising, Profits Up
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
KBR’s operating margin rose by 7.6 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 8.6%.
One Reason to be Careful:
Weak Backlog Growth Points to Soft Demand
Investors interested in Defense Contractors companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into KBR’s future revenue streams.
KBR’s backlog came in at $17.26 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 7.4%. This performance slightly lagged the sector and suggests that increasing competition is causing challenges in winning new orders. 
Final Judgment
KBR’s merits more than compensate for its flaws. With the recent decline, the stock trades at 12.1× forward price-to-earnings (or $49.79 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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