KBR could unlock value by separating STS and GS businesses, Citi says

November 30, 2022 9:58 AM EST
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In a note to clients Wednesday, following meetings with KBR's (NYSE: KBR) management, Citi analyst Andrew Kaplowitz highlighted they see potential optionality from the company separating its Sustainable Technology Solutions (STS) and Government Solutions (GS) businesses.

"... while the company highlighted potential synergies from keeping its two businesses (GS and STS) together, we see potential optionality given KBR could eventually separate these businesses, which we think could potentially create incremental value for KBR’s shareholders," Kaplowitz commented.

The analyst said they see STS being potentially ascribed a higher valuation multiple over time as a stand-alone company. This would be especially true if demand momentum across STS's end markets continues to pick-up and KBR continues to deliver/execute on its high growth/margin targets, the analyst noted.

While the analyst is bullish on the prospects of a separation, they don't see one as imminent as they view STS
still as a relatively small business with an estimated $1.25 billion in sales and $224 million in adj. EBITDA in 2022.

"All that being said, while we don’t think a separation is imminent, we do think a potential separation over time, could unlock additional value for KBR’s shareholder as both “pure-play” businesses could trade at higher multiples over time given their premium growth characteristics," the analyst added.

By Staff

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