Last week, Jim Cramer recommended shares of KBR (KBR) as a long-term value play.
It’s a $15 stock, with $9 cash per share on its balance sheet and zero debt. Furthermore, the company is expected to earn $1.70 this year. Trading at less than 3 times current earnings, KBR is dirt cheap.
KBR currently has a market cap of $2.45 billion, with a backlog of $13.4 billion. 89% of KBR's revenue is internationally based, with 11% domestically based. KBR's backlog is broken up into six pieces: downstream, government and infrastructure, services, technology, upstream and ventures
The downstream unit has a backlog of just under $300 million, mostly focused on various downstream projects, such as refining. Most of this segment is based on emerging markets.
Government and infrastructure has a backlog of $5 billion, with vast diversification among various defense services and nondefense branches of the U.S. government.
The services business unit backlog ballooned from first-quarter 2007 to first-quarter 2008, up a whopping 208%. Mostly driven from demand from the Canadian oil sands, this is an indirect play on the Canadian oil sands. Other notable projects include the Texas Instruments Campuses project, Air Products Hydrogen facility and MMM Vessel business.
Technology is the smallest backlog of the portfolio, coming in around $110 million. This is mostly leveraged to intellectual property assets and is focused on capitalizing on future licensing opportunities.
The upstream side of the business accounts for the largest portion of the backlog portfolio, coming in at a $6.5 billion, vs. $4 billion in the first quarter of 2007. This portion is directly leveraged to the price of oil and natural gas and exploration thereof.
The ventures backlog accounts for $700 million, up 17% since the first quarter of 2007. Here KBR makes equity investments on a standalone basis.
Cramer thinks that a possible catalyst, though, is that next April KBR will finally be able to sell itself. “Market rules state a company can’t sell itself for two years after a spinoff or IPO," he said on Oct. 1's episode of "Mad Money" on CNBC. "Given the amount of cash on KBR’s books alone -- and that’s not even taking into account a great backlog of business -- there’s a good chance this company could quickly find a suitor”
Near its 52-week low, KBR's total backlog has grown from $10.7 billion in first-quarter 2007 to $13.4 billion in first-quarter 2008, up 25% year over year. During the same time, recurring business income has grown 30%, which means KBR's customers love their service.
Know What You Own: KBR operates in the technical services industry. Some of the other stocks in its field include Fluor (FLR), Jacobs Engineering (JEC), Tetra Tech (TTEK) and URS (URS). These stocks recently closed at, respectively, $40.83, up 0.5%; $38.46, up 4%; $17.63, up 2.4%; and $26.52, up 1.5%. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.
Posted on Oct. 8, 2008
