Partnerships With Mura Technology And Global Expansions Will Drive Future Success

Key Takeaways

• Strategic partnerships and acquisitions, especially in recycling and military space, are projected to drive significant revenue growth from diverse market demands.
  
• Increased demand for ammonia technology and energy security projects support robust revenue growth, leveraging global market needs and KBR's expertise.
  
• KBR's dependence on non-U.S. government contracts and acquisitions presents revenue risks amid geopolitical and integration uncertainties affecting growth and earnings stability.

Catalysts

Provides scientific, technology, and engineering solutions to governments and commercial customers worldwide.

• The partnership with Mura Technology for advanced plastics recycling and the expansion of Hydro-PRT facilities in the UK, Korea, and Japan are expected to drive future revenue growth by meeting increasing market demand for sustainable practices and circular economy initiatives.
  
• KBR's acquisition of LinQuest, which enhances KBR's position in military space and digital arenas, is anticipated to support revenue growth from government contracts, particularly with expected continuity in U.S. government programs and new opportunities in space and defense sectors.
  
• Increasing demand for KBR’s ammonia process technology across regions like Angola and Kazakhstan is likely to bolster revenues, as these areas focus on meeting agricultural needs and diversifying their economies.
  
• The ramp-up of the HomeSafe program, expected to grow significantly by handling about 300-500 moves per day, is projected to boost overall revenue, with a substantial increase from 2024, suggesting a notable contribution to earnings in 2025.
  
• Continued emphasis on LNG and energy security projects, particularly with significant achievements like the Plaquemines LNG project, is set to drive revenue growth, leveraging KBR's established expertise and market position in delivering large-scale energy projects globally.

KBR Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming KBR's revenue will grow by 8.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.8% today to 6.7% in 3 years time.
• Analysts expect earnings to reach $664.1 million (and earnings per share of $5.09) by about April 2028, up from $374.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.0x on those 2028 earnings, down from 17.7x today. This future PE is lower than the current PE for the US Professional Services industry at 21.1x.
• Analysts expect the number of shares outstanding to decline by 1.37% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.37%, as per the Simply Wall St company report.

KBR Future Earnings Per Share Growth

Risks

• KBR's reliance on non-U.S. government contracts, despite being seen as a strength, could pose a risk if geopolitical situations or policy changes disrupt international relations, potentially impacting revenue streams from government contracts, both domestically and internationally.
  
• HomeSafe, a significant revenue contributor, is still ramping up with uncertainties around volume and profitability, which presents a risk if domestic and international moves do not proceed as planned, potentially affecting revenue and margins.
  
• The integration and performance of LinQuest appears positive, but the reliance on acquisitions to drive growth could pose risks if the expected synergy and market positioning do not materialize, potentially impacting earnings growth.
  
• The sector's reliance on energy security and decarbonization projects, while in alignment with market trends, can face macroeconomic or policy changes that impact project timelines and investment levels, which could affect revenue stability and growth prospects.
  
• Despite favorable mentions, reliance on equity earnings from joint ventures, such as Plaquemines LNG, and potential non-cash adjustments or scope changes, underscores variability that could affect reported earnings.

Valuation

• The analysts have a consensus price target of $71.778 for KBR based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $80.0, and the most bearish reporting a price target of just $64.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $10.0 billion, earnings will come to $664.1 million, and it would be trading on a PE ratio of 17.0x, assuming you use a discount rate of 7.4%.
• Given the current share price of $49.93, the analyst price target of $71.78 is 30.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.