$KBR quick value
upcoming spin (2H26) of MTS segment (government contractor)
1) MTS segment (SpinCo) = government contractor; focus on space/logistics (vs. peers heavier into IT, data, cyber, intelligence)
2) STS segment (RemainCo) = consulting services + IP licensing for energy, ammonia plants, chemicals, renewables
3) combined rev & EPS growing >9% and >12% from 2017-2024... $2.1bn cum. FCF -- $2.2bn spent on M&A, $750m buybacks, $467m dividends
4) stock trades at big discount to peers (11x earnings / 8x EBITDA vs. 16-17x / 12x) despite solid growth and reasonable leverage (~2.2x)
5) MTS segment w/ several ops mishaps lately... lost 2 major contracts forcing a reset of multi-year financial targets
6) mgmt set FY27 targets in May '24 = $11.5bn revenue, $1.15bn EBITDA, and $700m op. cash flow... reset in July '25 after contract losses = $9bn rev, $1.15bn EBITDA, $650m op. cash flow
7) STS business growing >DD with >20% EBITDA margins and nil capex... likely worth >10x EBITDA (recent HON acquisition suggests this is true)
8) sell-side estimates at ~$1.02bn EBITDA (vs. $1.15bn FY27 target) = low expectation of success
My fair value estimate = $57/share (based on 9x EBITDA for MTS + 11x EBITDA for STS)... alternatively, if they hit $1.15bn FY27 EBITDA target and trade at 10x historic multiple = $70/share
Nice combo of cheap + catalyst...
Hmm...
