KBR (KBR)

Government and sustainable technology solutions company KBR (NYSE:KBR) missed Wall Street’s revenue expectations in Q1 CY2025, but sales rose 13% year on year to $2.06 billion. On the other hand, the company’s full-year revenue guidance of $8.9 billion at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP profit of $0.98 per share was 13.7% 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).

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, KBR’s 6.5% annualized revenue growth over the last five years was mediocre. 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 10.3% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

KBR also reports its backlog, or the value of its outstanding orders that have not yet been executed or delivered. KBR’s backlog reached $17.29 billion in the latest quarter and averaged 5.2% 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’s revenue grew by 13% year on year to $2.06 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 12.3% over the next 12 months, an improvement versus the last two years. This projection is commendable and suggests its newer products and services will fuel better top-line performance.

KBR was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.7% was weak for an industrials business.

On the plus side, KBR’s operating margin rose by 4.9 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, KBR generated an operating profit margin of 9.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

KBR’s EPS grew at a spectacular 15.8% compounded annual growth rate over the last five years, higher than its 6.5% 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 was flat this quarter but expanded by 4.9 percentage points over the last five years. On top of that, its share count shrank by 7%. 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 13.4% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q1, KBR reported EPS at $0.98, up from $0.77 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects KBR’s full-year EPS of $3.56 to grow 8.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

KBR has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.4%, subpar for an industrials business.

Taking a step back, an encouraging sign is that KBR’s margin expanded by 3.8 percentage points during that time. We have no doubt shareholders would like to continue seeing its cash conversion rise as it gives the company more optionality.

KBR’s free cash flow clocked in at $89 million in Q1, equivalent to a 4.3% margin. This cash profitability was in line with the comparable period last year and its five-year average.

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).

Although KBR has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.9%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

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. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

KBR reported $442 million of cash and $2.96 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 $906 million of EBITDA over the last 12 months, we view KBR’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $72 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.

We enjoyed seeing KBR beat analysts’ EBITDA expectations this quarter. We were also glad its backlog outperformed Wall Street’s estimates. On the other hand, its revenue slightly missed. Overall, we think this was still a mixed quarter. The stock remained flat at $51.20 immediately following the results.

Updated: July 10, 2025 at 11:41 PM EDT

Are you wondering whether to buy KBR or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

KBR is a fine business. Although its revenue growth was mediocre over the last five years, its growth over the next 12 months is expected to be higher. And while KBR’s backlog growth has disappointed, its expanding operating margin shows the business has become more efficient. On top of that, its spectacular 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 12.2x. 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 $64.63 on the company (compared to the current share price of $46.91), implying they see 37.8% upside in buying KBR in the short term.