KBR (KBR)

Government and sustainable technology solutions company KBR (NYSE:KBR) fell short of the markets revenue expectations in Q3 CY2025, with sales flat year on year at $1.93 billion. The company’s full-year revenue guidance of $7.8 billion at the midpoint came in 2.8% below analysts’ estimates. Its non-GAAP profit of $1.02 per share was 6.9% above analysts’ consensus estimates.

Company Overview

Known for projects like the construction of Guantanamo Bay, KBR provides professional services and technologies, specializing in engineering, construction, and government services sectors.

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

Competitors focusing on the engineering, construction, and government services sectors include Jacobs Solutions (NYSE:J), Leidos (NYSE:LDOS), and SAIC (NYSE:SAIC).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, KBR’s sales grew at a mediocre 7% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about KBR.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. KBR’s annualized revenue growth of 8.6% over the last two years is above its five-year trend, suggesting some bright spots.

KBR also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. KBR’s backlog reached $17.1 billion in the latest quarter and averaged 1.7% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies KBR was operating efficiently but raises questions about the health of its sales pipeline.

This quarter, KBR missed Wall Street’s estimates and reported a rather uninspiring 0.8% year-on-year revenue decline, generating $1.93 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

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 6.4% was weak for an industrials business.

On the plus side, KBR’s operating margin rose by 6.6 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, KBR generated an operating margin profit margin of 9.9%, up 1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

KBR’s EPS grew at an astounding 17.9% compounded annual growth rate over the last five years, higher than its 7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into KBR’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, KBR’s operating margin expanded by 6.6 percentage points over the last five years. On top of that, its share count shrank by 9.9%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For KBR, its two-year annual EPS growth of 15.8% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, KBR reported adjusted EPS of $1.02, up from $0.84 in the same quarter last year. This print beat analysts’ estimates by 6.9%. Over the next 12 months, Wall Street expects KBR’s full-year EPS of $3.82 to grow 4.9%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

KBR has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.5%, subpar for an industrials business.

KBR’s free cash flow clocked in at $190 million in Q3, equivalent to a 9.8% margin. This result was good as its margin was 2.5 percentage points higher than in the same quarter last year. Its cash profitability was also above its five-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

KBR’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 11%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. KBR’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

KBR reported $539 million of cash and $2.85 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $953 million of EBITDA over the last 12 months, we view KBR’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $87 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see KBR narrowly top analysts’ backlog expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance missed and its revenue fell slightly short of Wall Street’s estimates. Overall, this quarter was mixed. The stock traded up 2.6% to $44.01 immediately after reporting.

Updated: December 4, 2025 at 9:06 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We think KBR is a solid business. Although its revenue growth was mediocre over the last five years and analysts expect growth to slow over the next 12 months, its expanding operating margin shows the business has become more efficient. And while its backlog growth has disappointed, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

KBR’s P/E ratio based on the next 12 months is 11x. When scanning the industrials space, KBR trades at a fair valuation. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $56.11 on the company (compared to the current share price of $44.60), implying they see 25.8% upside in buying KBR in the short term.