KBR stock downgraded to Neutral by UBS on government contract concerns

Investing.com - UBS downgraded KBR, Inc. (NYSE:KBR) from Buy to Neutral on Wednesday, while reducing its price target to $54.00 from $66.00. Currently trading at $48.15, InvestingPro analysis suggests the stock is undervalued, despite two analysts recently revising their earnings estimates downward.

The downgrade reflects UBS’s view of balanced upside/downside risk for KBR over the next 6-12 months, following recent negative developments in the company’s government-focused Mission Technology Solutions (MTS) segment. The company maintains solid fundamentals with a P/E ratio of 16.18 and has demonstrated consistent shareholder returns, maintaining dividend payments for 18 consecutive years with a current yield of 1.37%.

UBS expects KBR to reduce guidance due to these developments, most notably the HomeSafe contract cancellation, which had potential for $2 billion per year at full run-rate after 2027.

The near-term direction of KBR’s government business remains uncertain due to shifting priorities from the U.S. government and Department of Defense, along with increased scrutiny of programs and contracts.

While KBR’s energy business (Sustainable Technology Solutions) faces tough comparisons and timing uncertainties that could result in flat or declining year-over-year earnings, UBS projects first-half 2026 earnings per share to decrease 4% compared to the same period in 2025.

In other recent news, KBR has experienced significant developments regarding its operations and contracts. The U.S. Transportation Command terminated KBR’s joint venture, HomeSafe Alliance, from the Global Household Goods Contract, a move that KBR stated would not materially affect its adjusted EBITDA outlook for 2025. Despite this setback, Truist Securities has maintained a Buy rating for KBR, citing a relatively light impact on the company’s expected EBITDA for fiscal years 2025 and 2026. Conversely, KeyBanc downgraded KBR from Overweight to Sector Weight, expressing concerns over the company’s financial outlook following the contract termination.

Additionally, KBR secured a $161 million subcontract with Strategic Resources Inc. to provide resilience training services for the U.S. Army. This contract includes one base year and four option years, with work to be performed at Army installations worldwide. In related personnel news, Orion Group Holdings (NYSE:ORN) appointed Alison Vasquez, a former KBR executive, as their new Chief Financial Officer. Vasquez brings extensive experience in finance and accounting, which is expected to contribute to Orion’s growth phase. These recent developments highlight a period of both challenge and opportunity for KBR and its associated ventures.

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