Does KBR’s Steep 2024 Share Price Slide Create a Compelling Value Opportunity?

• If you have been wondering whether KBR is a beaten down opportunity or a value trap, you are not alone. This article is going to walk through the numbers with you.
• After sliding to around $42.80, the stock is down 1.6% over the last week and up 5.7% over 30 days, but still sitting on a heavy year-to-date loss of 26.1% and a 23.9% drop over the past year, despite being up 51.8% over five years.
• That kind of whiplash performance has come alongside a steady stream of contract wins and strategic project announcements that highlight KBR's role in defense, space, and mission-critical engineering. Together, these factors help explain why sentiment has been shifting, even as the share price still looks battered on a one-year view.
• On our framework KBR scores a perfect 6/6 valuation checks, suggesting it screens as undervalued across multiple lenses. Next we will examine what those approaches indicate, before circling back to a broader way to think about valuation at the end of the article.

Find out why KBR's -23.9% return over the last year is lagging behind its peers.

Approach 1: KBR Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a company is worth today by projecting its future cash flows and discounting them back to the present. For KBR, this approach starts with last twelve months Free Cash Flow of about $437.7 million and then applies a two stage Free Cash Flow to Equity method.

Analysts expect KBR’s FCF to rise to about $670 million by 2027, and Simply Wall St extrapolates that trajectory further, with projected FCF reaching roughly $1.09 billion by 2035. These cash flows, all in $, are then discounted back to today using an appropriate required return, which reflects both the time value of money and risk.

Combining those discounted projections results in an estimated intrinsic value of roughly $127.68 per share. Compared with the current share price around $42.80, the DCF output indicates the stock is about 66.5% undervalued, which indicates that the market may be heavily discounting KBR’s future cash generation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests KBR is undervalued by 66.5%. Track this in your watchlist or portfolio, or discover 919 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for KBR.

Approach 2: KBR Price vs Earnings

For established, profitable companies like KBR, the price to earnings ratio is a straightforward way to gauge whether investors are paying a sensible price for each dollar of current profits. A higher PE can be justified when a business has stronger growth prospects and lower perceived risk, while slower growth or higher uncertainty usually warrant a lower, more conservative multiple.

KBR currently trades on a PE of about 13.1x, which is well below the Professional Services industry average of roughly 24.2x and also under the peer group average of around 23.5x. Simply Wall St’s Fair Ratio model, which estimates what PE KBR should trade on given its earnings growth outlook, margins, industry, market cap and risk profile, points to a higher “fair” multiple of about 24.8x. This company specific Fair Ratio is more informative than simple peer comparisons, because it adjusts for KBR’s own fundamentals instead of assuming that all firms in the sector deserve the same valuation.

With the Fair Ratio sitting meaningfully above the current PE, this framework suggests KBR’s earnings are being priced at a discount and the stock appears undervalued on a PE basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1460 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your KBR Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives, an easy tool on Simply Wall St’s Community page that lets you attach a clear story to your numbers by linking your view of a company’s future revenues, earnings and margins to a forecast, and then to a Fair Value that you can compare against the current price to decide whether to buy, hold or sell. That Narrative automatically updates as new news or earnings arrive. For KBR, one investor might build a bullish Narrative around defense and energy transition momentum and arrive at a Fair Value close to the more optimistic analyst target near $67, while a more cautious investor focuses on contract delays and geopolitical risk and lands nearer the bearish $53 target. Yet both can transparently see how their assumptions drive their valuation and adjust as the story evolves.

Do you think there's more to the story for KBR? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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