What is KBR's Intrinsic value?

KBR Inc (KBR) Intrinsic Value Analysis

Executive Summary

As of May 22, 2025, KBR Inc's estimated intrinsic value ranges from $28.09 to $71.21 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $71.21 +36.8%
Discounted Cash Flow (5Y) $66.51 +27.7%
Dividend Discount Model (Multi-Stage) $49.17 -5.6%
Dividend Discount Model (Stable) $58.94 +13.2%
Earnings Power Value $28.09 -46.1%

Is KBR Inc (KBR) undervalued or overvalued?

With the current market price at $52.07, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate KBR Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.82 0.88
Cost of equity 7.6% 9.8%
Cost of debt 5.0% 5.1%
Tax rate 26.2% 27.0%
Debt/Equity ratio 0.36 0.36
After-tax WACC 6.6% 8.2%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.4% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $7,742 (FY01-2025) to $13,649 (FY01-2035)
  • Net profit margin expansion from 5% to 5%
  • Capital expenditures maintained at approximately 1% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $67 $10,932M 83.5%
10-Year Growth $71 $11,541M 69.6%
5-Year EBITDA $45 $8,181M 78.0%
10-Year EBITDA $54 $9,290M 62.2%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 20.4%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.7%
  • Long-term growth rate: 3.5%
  • Fair value: $49.17 (-5.6% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.8% (Low) to 7.6% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $30 to $88
  • Selected fair value: $58.94 (13.2% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $434M
Discount Rate (WACC) 8.2% - 6.6%
Enterprise Value $5,303M - $6,589M
Net Debt $2,302M
Equity Value $3,001M - $4,287M
Outstanding Shares 130M
Fair Value $23 - $33
Selected Fair Value $28.09

Key Financial Metrics

Metric Value
Market Capitalization $6756M
Enterprise Value $9058M
Trailing P/E 16.97
Forward P/E 16.73
Trailing EV/EBITDA 11.60
Current Dividend Yield 111.25%
Dividend Growth Rate (5Y) 9.98%
Debt-to-Equity Ratio 0.36

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $21.36
Discounted Cash Flow (5Y) 25% $16.63
Dividend Discount Model (Multi-Stage) 20% $9.83
Dividend Discount Model (Stable) 15% $8.84
Earnings Power Value 10% $2.81
Weighted Average 100% $59.48

Investment Conclusion

Based on our comprehensive valuation analysis, KBR Inc's weighted average intrinsic value is $59.48, which is approximately 14.2% above the current market price of $52.07.

Key investment considerations:

  • Strong projected earnings growth (5% to 5% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 9.98%

Given these factors, we believe KBR Inc is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.