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One of the tricks of being a good investor is gauging when sentiment is turning on a stock and establishing a position before others spot the momentum. The oil services sector has had some challenges lately as low natural gas prices have hit hard and estimates have fallen quickly across the board since the year began. However, I like one stock in the sector, KBR (KBR). This name seems to be turning around, has low valuations, and is worth considering.

Key Recent Events

  • Consensus estimates for FY2012 and FY2013 have ticked up over the last month after falling earlier in the year.
  • JPMorgan initiated coverage Tuesday with an "Outperform" rating and a $45 price target on the stock.
  • A smaller analyst firm, Tudor-Pickering, initiated KBR as a buy on April 4.


As stated in the business description for KBR on Yahoo Finance:

KBR operates as an engineering, construction, and services company worldwide. The company's Hydrocarbons segment designs and constructs liquefied natural gas and gas-to-liquids facilities for the development and transportation; and delivers onshore and offshore oil and natural gas production facilities, including platforms, floating production and subsea facilities, and pipelines.

Here are four additional reasons KBR has solid upside at just $35 a share:

  • It has beat earnings expectations significantly five of the last six earnings reports. The average beat over consensus over those six periods is north of 25%.
  • It is below its consensus price target. The 14 analysts who cover the stock have a mean price target of $46.75.
  • KBR sports a forward P/E of just over 11, which is a 30% discount compared to its historical average.
  • It has solid balance sheet with over $1 billion in net cash (20% of its market capitalization). It also sells at just over 50% of annual revenues.
Source: Analyst Upgrades Could Propel KBR Forward