Over the past six months, KBR’s shares (currently trading at $38) have posted a disappointing 19.9% loss while the S&P 500 was down 2.3%. This may have investors wondering how to approach the situation.
Given the weaker price action, 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 Positive Attributes:
1. Operating Margin Rising, Profits Up
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
KBR’s operating margin rose by 6.8 percentage points over the last five years, as its sales growth gave it operating leverage. Its operating margin for the trailing 12 months was 10%.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
KBR’s EPS grew at 17.7% compounded annual growth rate over the last five years, higher than its 6.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Backlog Declines as Orders Drop
We can better understand Defense Contractors companies by analyzing their backlog. 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 $16.86 billion in the latest quarter, and it averaged 1.5% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation. 
Final Judgment
KBR’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 9.5× forward P/E (or $38 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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