KBRNYSEThe short version
KBR, Inc.
KBR is a Houston-based provider of engineering, technical and mission services to the U.S., U.K. and Australian governments, plus a portfolio of licensed industrial process technologies, and it plans to split into two public companies in early 2027.
From a November 2024 peak near $72, the shares have fallen by roughly half to about $35 — even as backlog, margins and adjusted earnings kept rising.
$35.17
Share price
$4.5B
Market cap
$7.8B
Revenue (FY2025)
8.9×
Forward P/E
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The statements
Revenue near $7.8B, operating margin doubled, one below-the-line loss
FY2019 → FY2026as reported · $
Revenue$7.8B+1%
Gross margin14.8%+0.5pp
Operating margin10.0%+1.4pp
Net income$415M+11%
EPS$3.21+15%
Free cash flow$410M+0%
Open the full statements →As reported. KBR's fiscal 2025 ended January 2026; the statements module labels years by calendar.
- A transformed record. Revenue rose from $6.6 billion in FY2022 to about $7.8 billion in FY2025, and operating margin roughly doubled — from about 5% to near 10% — as the mix shifted toward defense, space and licensed technology.
- One reported loss, below the line. The FY2023 net loss of $265 million came from a one-time charge to retire convertible notes, not operations — operating income that year was a positive $449 million.
- Cash tracks the profit. Free cash flow has run at or above net income for three straight years on capital spending under 1% of revenue — a clean-conversion pattern for a services and licensing book.
Earnings quality
Nearly half the profit comes from joint ventures KBR doesn't control
JV equity earnings vs cash distributions
A series governed by project timing, not an annuity — yet the cash keeps coming out.
- The engine is one estimate. The profit engine investors are buying is largely one minority stake's own estimate: $210 million of FY2025 equity in earnings — about 46% of KBR's continuing net income and $177 million of it inside STS — flows from joint ventures KBR does not control, and
- the year's growth was driven by a $134 million one-time favorable change in estimate on a single 45%-owned LNG construction JV, a revision larger than the entire $103 million rise in equity earnings.
- Cash-backed, not fictional. Those JVs paid $170 million of distributions plus an $82 million return of capital in FY2025, and $407 million against $431 million recognized over three years — a concentration concern, not phantom profit.
Government risk
A won, exclusive contract can still go to zero
$0
HomeSafe revenue todayexclusive award terminated Jun 2025
$3.0B
Won awards stuck in protest+50% in one quarter
−15%
Readiness & Sustainment, 2 yrs$1,495M → $1,277M
91%
FY2026 revenue under contractentering the year
Concentrated, identifiable events against a portfolio that is largely under contract.
- Three ways it leaves. Government revenue does not only leave through recompete losses — a customer can terminate a won, exclusive contract outright, as TRANSCOM did to HomeSafe, or in-source it, as NASA has signalled — which is why the government half is a narrow moat rather than a fortress.
- Concentrated events, not collapse. Management frames the U.S. portfolio as mission-essential, multiyear work, and 91% of FY2026 revenue was already under contract — these are identifiable losses, not broad franchise erosion.
How it makes money
The smaller segment earns more of the profit
FY2025 revenue vs segment operating income
STS is 28% of revenue at a 21.6% margin; MTS is 72% at 8.3%.
- Two engines. Mission Technology Solutions is the scale engine — $5.6 billion of mostly cost-reimbursable government work at an 8.3% margin. Sustainable Technology Solutions is the profit engine — $2.2 billion of licensed technology at 21.6%.
- Profit sits with the smaller half. STS booked $477 million of segment operating income against MTS's $463 million on less than half the revenue, so KBR's earnings are more sensitive to the technology segment than the revenue split suggests.
Corporate expense of $162M reconciles the segments to $778M of consolidated operating income.
Cash quality
Cash has run ahead of reported profit
Net income vs free cash flow — continuing operations
Free cash flow topped net income each year; FY2023's loss was a non-cash convertible-notes charge.
- Above 100% conversion. Operating cash flow reached $557 million and free cash flow $515 million in FY2025 — both above adjusted net income of $507 million and GAAP net income of $403 million, on capital spending of just $42 million.
- Cash, not accruals. Depreciation runs well ahead of the tiny capital budget and working capital is broadly neutral — for a cost-plus services and licensing book, a healthy conversion pattern.
- But the JVs set the schedule. Much of the cash arrives as joint-venture distributions ($170 million in FY2025), so a lean JV year would take a visible bite out of both profit and cash.
Solvency
Low near-term default risk, but the equity is goodwill
$2.1B
Net debt2.2× adj. EBITDA
~6×
EBITDA / interest coveragecovenant floor 3.0×
$1.0B
Liquidity: cash + revolverrevolver to 2029
−$1.9B
Tangible book valuegoodwill $2.7B > equity $1.5B
A cash-flow and coverage margin of safety, not an asset one.
- Not a distressed balance sheet. Net debt of $2.1 billion sits at 2.2 times EBITDA against a 4.0x covenant, interest is covered about six times, and $1.0 billion of liquidity backs a $16.9 billion order book.
- The safety is cash, not assets. Goodwill of $2.7 billion exceeds shareholders' equity, so tangible book is about negative $1.9 billion — expected for an asset-light firm, but there is no collateral to fall back on if earnings falter.
The catalyst
One KBR share becomes two in early 2027
The two companies
| Company | Revenue | Op. margin | Backlog |
|---|---|---|---|
| SpinCo — MTS (gov. services) | $5.6B | 8.3% | $19.1B* |
| New KBR — STS (licensing) | $2.2B | 21.6% | $4.2B |
Targeted for January 4, 2027, tax-free. *MTS shown as backlog-and-options; firm backlog is ~$12.7B.
- Split along the segment line. Mission Technology Solutions — the government-services half, 57% of company revenue from U.S. budgets — is spun off; 'New KBR' keeps the higher-margin Sustainable Technology Solutions licensor.
- A re-rating bet, not free value. At today's ~8x blended multiple the parts reproduce the current price; the gain only appears if each half earns its own peer multiple — and re-created standalone costs and the debt split cut against it.
- Still conditional. Completion needs an IRS ruling, an effective Form 10 and financing; management will not promise the two pieces are worth more than the whole.
The government half
Backlog growth is options, not committed work
MTS order book: firm backlog vs options
Firm backlog barely moved while the headline 'backlog and options' rose 15%.
- Flat revenue, softer orders. MTS revenue was essentially unchanged at $5.6 billion in FY2025 and fell 6–14% in recent quarters; book-to-bill dipped to 0.5x in Q4 before recovering to 1.1x.
- Firm vs. headline. The $19.1 billion 'backlog and options' the company advertises grew 15%, but firm backlog held near $12.7 billion — a checkable early signal is whether book-to-bill holds above 1.0x.
Demand backdrop
Rising defense budgets and energy-transition demand
The demand backdrop
| Growth vector | Backdrop |
|---|---|
| U.S. defense | $150B+ multiyear DoD funding through 2029 |
| NATO / allies | 5%-of-GDP defense target by 2035; U.K. & Australia raising budgets |
| Clean refining / LNG | 15–20% market growth; leading ammonia and LNG technology |
| New energies | 100–125% market growth off a small base (recycling, SAF, lithium) |
Company- and filing-sourced growth ranges; the near-term order book has lagged the vectors.
- The bull case's strongest leg. A July 2025 reconciliation bill added $150 billion of multiyear U.S. defense funding, and NATO members agreed to lift spending toward 5% of GDP — a firming medium-term backdrop for the government half.
- Real but lumpy on the tech side. STS's energy-transition markets grow fast on paper, yet FY2025 STS revenue rose only 2% as customers paused petrochemical and green projects; book-to-bill ex-LNG was 1.2x.
Alignment
Thin insider ownership, but insiders bought the decline
Insider open-market buying, May 2026
| Insider | Price | Value |
|---|---|---|
| Shad Evans (CFO) | $30.60 | $256K |
| Carlos Sabater (Dir., Audit Chair) | $32.47 | $471K |
| Jack Moore (Director) | $31.44 | $126K |
| Lewis Von Thaer (Director) | $30.77 | $92K |
All purchased below the current $35, none under pre-set 10b5-1 plans.
- No controlling owner. Directors and officers together hold about 1.15% of the stock and the register is index-dominated — the founder-style skin in the game this investor prefers is absent.
- Pay moved with the stock, and insiders added. The CEO's realized pay fell 64% as shares de-rated, and four insiders — including the audit-committee chair — bought about $945,000 in the open market below today's price.
Capital allocation
Record cash returns, but bought above today's price
Capital returned to shareholders
FY2025 returned a record ~$413M — about 9% of market value — against $515M of free cash flow.
- A near-9% shareholder yield. KBR returned $329 million of buybacks and $84 million of dividends in FY2025, has raised the dividend every year to $0.66, and has $427 million left on its repurchase authorization.
- Timing cost. Most of the FY2025 buyback was executed as the stock fell; the fourth-quarter tranche averaged $42.70, above today's $35 — so the repurchases have not yet compounded value at the de-rated price.
Valuation
Priced near 9x — cheap on the reported base, less so once normalized
Analyst price targets vs today ($)
Low target
$36
Median target
$45
Mean target
$47
High target
$60
Mean target $46.57 is ~33% above the price; even the low target sits above $35.
- Cheap against its peers. At about $35 KBR trades near 8.9x forward earnings and an 11.5% free-cash-flow yield — below government-services peers at 9–13x and a technology licensor near 16x, the gap the spin is meant to exploit.
- Less cheap once normalized. That multiple rests on a base flattered by one LNG joint venture; strip the $134 million one-time revision and forward earning power is lower, so 8.9x reads as a fair price rather than an obvious mispricing.
What to watch
Cheap, cash-generative and about to split — resting on a profit base that leans on one joint venture and one customer.
- 01Form 10 carve-out financials (2H 2026): New KBR net leverage below ~1.5x confirms a deleveraged tech-co; MTS above ~3x flags a leveraged government successor.
- 02MTS book-to-bill: sustained above 1.0x with firm backlog rising means the trough has passed; a slip back toward 0.5x means the decline is not over.
- 03STS ex-LNG margin: holding near 16% as the Plaquemines JV winds down supports the licensing thesis; a step-down exposes the JV dependence.
- 04FY2026 delivery: landing inside the $3.87–$4.22 adjusted-EPS guidance defends the multiple; a cut validates the discount.
This distills a guided study built chapter by chapter — from the statements through earnings quality, the spin, and what to watch.
Compiled from the full report · 2026-07-17 · For information, not investment advice.