Psst! Newly IPO - KBR Inc. (KBR) is sound
KBR is a subsidiary of Haliburton (HAL). On November 19, 2006, HAL spun off KBR as a separate entity. The issue was offered at $17/share to exclusive investors and closed up 22% on the first day of trading. It was a very successful IPO; the company netted $440 million. It is important to note, HAL still owns over 80% of KBR, but plan to sell the remaining shares to the public in April 2007 (AP, 2006).
KBR operates two main businesses; the primary business is building plants that convert natural gas to liquid and other energy-related projects. KBR has designed and built more than half the world's liquefied natural gas production capacity in the past 30 years. This is the bread and butter of KBR and they are the leader in this space. There are not very many competitors here; the barrier of entry is high so it’s not like anyone can easily compete in this space.
KBR's other business arm is its government and infrastructure unit, which provides military logistics and support services ranging from base construction to food provision. Currently, KBR is the sole contractor providing these services to the U.S Military in Iraq and Afghanistan. According to the AP, this controversial government contract expires next year (2007), and the Army wants multiple contractors for the services. KBR is bidding again, and some defense analysts are predicting both KBR and competitor IAP, which is run by former KBR executives, will each win one of the 10-year deals that start in 2007. This basically means KBR need not worry! There is a lot of government money to go around.
Since KBR’s debut, the stock has been performing well; it is currently trading at $25.21/share after an analyst imitated coverage of “buy”. Here is the meat of the analyst notes:
“The stock previously traded between $20.50 and $23.95 since its Nov. 16 initial public offering, when oil services giant Halliburton Corp. spun off about 19 percent of KBR to shareholders. Halliburton has said it plans to spin off the rest of the company in 2007.
Stifel Nicolaus analyst Barry B. Bannister started coverage of KBR at "Buy" with a $32 target price, in anticipation of a strong pending capital spending cycle from the company's energy customers. He also believes the partial spin-off makes KBR more accountable to shareholders.
In 2007, the company will avoid its "troublesome record of frequent, large charges" and produce earnings stability, the analyst wrote.”
Source: http://biz.yahoo.com/ap/061219/kbr_mover.html?.v=1
I don’t usually advocate jumping into new issues, but this one is different. KBR is a proven company with sound fundamentals. In my view, the current price is still attractive. With the backing of Haliburton (HAL) and proven business, this is an opportunity to buy a newly IPO with reliable revenue stream. Moreover, KBR is providing services that are needed today and in the foreseeable future. This company will be around. What we like most about KBR is there are not many competitors. Getting into KBR now should fare well in the long term. Our recommendation is to buy this stock before it reaches the $30 range. As more analyst starts to cover the stock and issue their reports, $30/share is easily within range.
