Over the last six months, KBR’s shares have sunk to $33.73, producing a disappointing 17% loss - a stark contrast to the S&P 500’s 6.1% gain. This might have investors contemplating their next move.
Is now the time to buy KBR, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is KBR Not Exciting?
Even with the cheaper entry price, we’re swiping left on KBR for now. Here are three reasons we avoid KBR, plus one stock we’d rather own.
1. 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 $17.32 billion in the latest quarter, and it averaged 1.2% 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. 
2. Projected Revenue Growth Is Slim
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.
Over the next 12 months, sell-side analysts expect KBR’s revenue to rise by 6.2%. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. Weak Operating Margin Could Cause Trouble
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
KBR was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.9% was weak for an industrials business.
Final Judgment
KBR isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 8.2× forward P/E (or $33.73 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Like More Than KBR
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