Shares in KBR Inc. are rising almost 6% in the pre-market session after the engineering and construction company said it agreed to buy national security and space contractor Centauri for about $800 million.
The stock is currently surging to $23.90 in Wednesday’s pre-market trading. As part of the deal KBR (KBR) will buy Centauri from private equity firm Arlington Capital Partners and plans to fund the purchase with around $300 million in cash and $500 million of debt. With this acquisition, KBR seeks to expand its military space and intelligence businesses and build on its already strong cybersecurity and missile defense solutions. The transaction is expected to close in the fourth quarter of this year.
“KBR’s acquisition of Centauri furthers the company’s mission to becoming a highly technical, mission focused organization and expands KBR into exciting new and adjacent vectors,” said KBR CEO Stuart Bradie. “The addition of Centauri makes KBR a leader in end-to-end military, intelligence and commercial space solutions by increasing scale and adding complementary expertise and space domain awareness to our strong space system design, development, test, launch and operations.”
Houston-based KBR is primarily a government contractor with a focus on engineering and construction. Headquartered in Chantilly, Centauri is an independent provider of space, directed energy, and other advanced technology solutions to the US Intelligence community and Department of Defense.
KBR said that Centauri has achieved “significant growth” over the last four years, becoming a pure-play space and intelligence solutions provider benefitting from its highly cleared and technical workforce, space domain awareness and a customer-focused footprint of classified operations.
Following KBR’s 2Q results earlier this month, Cowen & Co analyst Gautam Khanna reiterated a Buy rating on the stock with a $29 price target saying the “stock remains too cheap to ignore”. (See KBR stock analysis at TipRanks)
“KBR’s Q2 was mixed, but early C21 color suggests EPS growth will resume before considering cash deployment,” Khanna wrote in a note to investors. “However, the composition of the growth likely differs from Street expectations, as TS [technology solutions]/Energy EBITDA is expected to nearly double vs. a more muted rise at GS [government solutions].”
In line with Khanna, Wall Street analysts have a bullish outlook on the stock. KBR scores 6 unanimous Buy ratings which make it a Strong Buy analyst consensus. With shares down 26% so far this year, the $29.67 average price target indicates about 31% upside potential from current levels.
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