The stock has weakened from recent highs of $45, to a new trading range of $39 to $42. So I have been buying as we touch here in the $40-$41 range of late. This is roughly the 20 day moving average - I've taken KBR up to 2.75% today with my last batch of buying. I will assess post earnings, and as with any stock you can get a lemming selloff; which would just be a good buying opportunity for this secular growth story. The 50 day moving average sits down at $38.50 so I'd expect that to provide some support, short of market meltdown. Last, the stock has had a huge run, up from low $30s in August, so you always have risk of investors locking in profit on weakness.
That said, estimates for KBR for 2007 are $1.14 on $8.72B in revenue and $1.51 next year on only $8.04B in revenue. If the trend in all the other infrastructure stocks hold true (see Shaw Group Mighty Impressive) I expect by the time we get to the end of 2008, those numbers will look understated. For example, that $1.51 2008 estimate is up from $1.38 estimate just from the previous earnings report time frame (90 days ago). But we're talking about 27x 2008 estimates if they hold here in the $1.50ish area; not cheap but these type of companies should be solid 25-30%ish growers, with growing backlogs, in a secular growth area.
If the US economy slows as I predict in the coming year, that type of protected growth will cost a premium in this market. Hence, why I am favoring the agricultural and infrastructure names along with some selected tech as we move forward into 2008. If KBR shows the guidance and commentary I expect for 2008 (again the wildcard is military spending), I will be happy to add more at higher prices if need be.
Long KBR in fund and in personal account
