KBR, Inc.(KBR: Charts, News, Offers), once known as Kellogg Brown and Root, a former subsidiary of Halliburton (HAL: Charts, News, Offers), is an engineering and construction military contracting company, which has strong ties to the United States government and has been brought to trial countless times for corruption, foreign bribery, shoddy construction work, overbilling the government, sexual assault among workers, human trafficking and open burn pits. Yet the Houston-based company, spun off from Halliburton due to intense scrutiny and protests, characterized in the media as a “cartoonishly evil corporation” has gone on profiting unregulated, with mere slaps on the wrists for its accused crimes, and has comfortably secured multiple new contracts from the United States government. It’s time to put the spotlight on KBR once again and examine just what makes this company, deeply rooted in American politics, so indefatigable and impervious to bad press and legions of activists, and though ethics may dictate otherwise, such a safe bet in the stock market.
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KBR, which had mainly developed as a subsidiary of energy giant Halliburton, has been extremely active in American politics since World War II, picking up the pace greatly during Lyndon B. Johnson’s Vietnam War years and drawing widespread attention during both the elder and younger Bushes invasions of Iraq. The company has thick roots in both the Democratic and Republican parties, and has been often criticized as being latched onto the Neo Conservative movement in American politics, which is prevalent in both parties, derived from the World War II era Democratic party ideals of a strong American military functioning as a global guardian of democracy against communist regimes.
As a military contractor, under its Government and Infrastructure Division (G&I), KBR’s job in war zones is to bring a slice of home to soldiers abroad by outfitting military bases with modern amenities, entertainment, and American food in fully stocked cafeterias. It also provides contingency logistics and field support to the U.S. military through the use of both foreign and domestic war zone drivers. KBR also functions as an energy company through its Energy and Chemicals Division (E&C), which constructs massive, technologically complex petrochemical projects in a large number of remote locations around the world. This division sells oil, fertilizer and other petrochemicals to both domestic and foreign governments.
KBR’s massive influence easily allowed it to be awarded two contracts by the Republic of Iraq’s Ministry of Oil at the end of August. KBR will license its Fluid Catalytic Cracking (FCC) and Solvent Deasphalting (SDA) technologies to the Southern Refineries Company in the planned Maissan Refinery in Maissan, Iraq. These technologies are expected to produce 47,500 barrels a day in its FCC unit, which is to be delivered through a partnership with ExxonMobil (XOM: Charts, News, Offers) and Engineering Company (EMRE: Charts, News, Offers), and 45,000 barrels a day in its SDA unit. As expected, the details of this contract, part of the two year, $7 billion “Restore Iraqi Oil” contract with the U.S. government, remain classified, and has been widely criticized for its provision granting KBR broad immunity in case of injury or death at any of its contracted sites. This comes on the heels of a 1.29 billion contract from mining giant Rio Tinto (RIO: Charts, News, Offers) which further diversifies its resource portfolio, and a 568 million contract with the U.S. Army which extends its military contracting presence in Iraq up through 2011. All this and more was awarded to KBR despite burn pits which caused cancer and respiratory illnesses in soldiers and workers, faulty electrical wiring in showers that caused electrocution deaths and continued reports of rampant overbilling. Dina Rasor, founder of POGO (Project On Government Oversight) has claimed that KBR threatened the Army “over and over again” to stop basic services such as meals for soldiers if the Army were to report on KBR’s misconduct and damaging, cost-cutting methods. “People either fear KBR or want to work for them,” she said. The POGO database shows that KBR has 22 cases of misconduct on its record with a cost of 126.8 million. The only true penalty levied against KBR was the loss of exclusivity in its contract with Army Materiel Command, known as LOGCAP (Logistics Civil Augmentation Program), which is an umbrella contract that allows KBR to be the military contractor of a certain conflict region. LOGCAP I (1992),II (1997) and III (2001) were all awarded to KBR without competing contractors, however, due to widespread criticism of the company during the third LOGCAP, KBR is now forced to compete against DynCorp (DCP: Charts, News, Offers) and Fluor (FLR: Charts, News, Offers) for LOGCAP IV, though many observers believe this to be simply a formality to pacify critics.
Should investors bet on KBR, with its apparent immunity from government regulation? Time and time again the company has swept cases, including its well publicized rape case, under the rug to little or no prosecution. The stock has traded between $17.28 and $24.89 this past year. At its current price, around $24, it trades at 1.7x book value with a P/E of 12.91. Both its net profit and operating margins have increased since last year, the former from 3.01% to 4.57%, the latter from 4.43% to 7.45%, signifying healthy growth. Its most recent earnings revealed revenue of 2.7 billion, with a 468 million decrease since the same period the prior year in North America related to LogCAP III expenses. However, the company has repurchased 2.8 million shares, valued at 62 million in the second quarter and continues to pay out a 0.05 quarterly dividend. Many analysts believe that despite the company’s reviled reputation in the public eye, its symbiotic relationship with the U.S. government is undeniable. The Obama administration has shown lately that it has no intention to bring down KBR, but rather to settle with the status quo. As long as this status quo exists, KBR is sure to regain momentum; as the economy rebounds, so will the infrastructure industry to which the company belongs. While it may not see its 2007 highs of $44 per share anytime soon, it can be safe to say this company’s downside is extremely limited.
Other News About KBR
Government has let Blackwater, KBR off the hook, too – Obama maintains the status quo
KBR gets $1.29 bln contract for Rio Tinto mine – KBR diversifies into mining (KBR: Charts, News, Offers)
Other Stocks in the News
IBM to Buy Analytics Company Netezza for $1.7 Billion – Not to be outdone by HP, IBM begins acquisitions of its own (HPQ: Charts, News, Offers), (IBM: Charts, News, Offers)
Halliburton Surpasses 500th SmartWell Completion System Milestone – Halliburton keeps growing (HAL: Charts, News, Offers)
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
My name is Bruce Diggs, and I am the Number One undisputed Top Gun resume writer in the known world for all things LOGCAP and for those seeking lucrative, high paying overseas jobs for companies like KBR, Fluor, ITT, DynCorp, L3, World Wide Language Resources, Triple Canopy and SOC to name a few.
Say what you will about KBR, but after spending years in the Middle East, Central Asia, and the Balkans working for them, I can tell you that they are not the Evil Empire you make them out to be. One of the more interesting lines in this story is “People either fear KBR or want to work for them”, and that is actually quite true. I am a primary enabler of people wanting to work on LOGCAP including Republicans, Democrats, Conservatives, Liberals, Doves, Hawks, Libertarians, the far right, the far left, and probably even some people who voted for Ross Perot.
But my contention is that this story is pure spin, conjecture and an obvious attempt to demonize America’s involvement in Iraq and Afghanistan. (I can just hear some of those high-browed, liberal pseudo-intellectuals out there now) – ’WELL! I NEVER! JUST WHO THE H.E. double L DOES HE THINK HE IS?’
Any MNC the size of KBR is going to have issues – it’s the nature of the beast. War will always be with us so who do you think is going to provide for the logistics of meeting the needs of the troops in the field? If KBR doesn’t provide the manpower, then what company do you suggest take their place?
But even some of your readers may want to work on LOGCAP, so you should check out my site sometime. Really. My portfolio includes a resume for a NASA space suit engineer, a TON of high ranking military officers and NCO’s, the FBI, a veritable ARMY of executive level managers, scads of IT pros, mad scientists, and all the crafts and trades including more truck drivers, plumbers, electricians and carpenters than you can shake a progressives’ stick at.
On my site you’ll find a link to some of my writings which appeared (in the most unlikely of places), the Huffington Post. You’ll also find me providing contributions as a guest blogger on William Beaver’s site DangerZoneJobs (featured in a PBS documentary), and within the annals of the MsSparky blog (hosted by Debbie Crawford who appeared on the Rachel Maddow show), where I discuss -among other things – the in’s and out’s of resumes and what it takes to catch the attention of the nefarious LOGCAP recruiters.
The LOGCAP industry is BIG business involving hundreds of companies, large and small, and I have become somewhat renowned within certain circles…like inside the Beltway MNC’s, Think Tanks, Homeland Security, TSA, PMC’s, PSD’s, x-y-z’s…you name it – I’ve been there, done that, got the t-shirt.
I’m not real fancy, and I’m not much for snooty formality, but I get the job done, voice my opinion, and evidently a lot of people working overseas swear by my work. Catch me at LogCap4Jobs. What’s up FOX?