KBR Ends 2022 With Strong Q4

KBR ended 2022 with a strong fourth quarter, as its adjusted EPS of $0.69 beat our estimate by $0.06. After rolling our model forward one year, we’ve increased our fair value estimate for KBR to $58 from $56, mostly due to time value of money.

Excluding the completion of work related to the Operation Allies Welcome, or OAW, program, KBR’s fourth-quarter revenue increased by 23% from the same period last year. Excluding OAW, government solutions revenue was up 10% year over year, fueled by higher activity in the European command as well as strength in the international and space businesses. Sustainable technology solutions adjusted EBITDA was up 17% from the prior-year period thanks to growth in engineering services and technology licensing. The company reported a 1.2 times book/bill ratio, with $1.5 billion in new award and options in the fourth quarter.

Management initiated guidance for full-year 2023 and anticipates revenue of $6.9 billion to $7.1 billion, adjusted EBITDA of $715 million to $745 million, and adjusted EPS of $2.76 and $2.96. KBR also reaffirmed its 2025 targets, which include adjusted EPS of $4.75. We believe that KBR’s portfolio transformation has significantly improved long-term visibility, as over 70% of the work necessary to achieve management’s 2025 targets is already under contract.

We believe that both segments are well-positioned to deliver strong long-term revenue growth. Management said on the earnings call that it now expects the sustainable technology solutions segment to reach its 2025 target of around $300 million in EBITDA in 2023, and we expect continued strong momentum in the business due to growing demand for sustainable solutions in areas such as hydrogen, ammonia, and plastics recycling. Furthermore, we think that the government solutions segment will benefit from opportunities in the space, intelligence, and cybersecurity sectors.