A lot to like in 3Q 2025 with increased guidance, a lift to the dividend, proactive debt repayment as well as re-accelerated share repurchases; fair value increased to $16 per share (up from $14 per share)

This morning, before the market open, GTX reported 3Q 2025 sales up 9% (or ~6% on a constant currency basis) to $902 million with notable share gains in the light vehicle gasoline space (and while still a relatively small piece of the overall pie increasing industrial/data center-driven demand for the company’s e-cooling compressors). Adj. EBITDA rose nearly 14% to $164 million while adj. free cash flow (FCF) improved 50% year-over-year to $107 million. GAAP net income improved 48% to $77 million (on 220 bps of margin improvement to 8.5%).

On the capital allocation front, GTX repurchased an additional $84 million worth of stock during the quarter (up from $22 million in 2Q 2025) and continues to have $114 million remaining on its existing buyback authorization. Additionally, GTX’s Board approved a $0.02 per share (or ~33%) increase in the quarterly dividend to $0.08 per share (from $0.06 per share) as well as the voluntary early repayment of $50 million of its Term Loan debt.

At quarter end, GTX’s net leverage ratio was 1.96x (along with no significant debt maturities until 2032). The company’s near-term leverage target remains ~2.0x (while committing to return ~75% of adj. free cash flow to shareholders).

In terms of guidance, the company increased its full-year 2025E outlook (see Exhibit #1 on page 2), which now calls for full-year 2025E sales of $3.5-$3.6 billion (up from $3.4-$3.5 billion) with GAAP net income and adjusted EBITDA of $265-$295 million (up from $233-$278 million) and $610-$650 million (previously $590-$650 million), respectively. Cash flow from operations is projected to be $380-$450 million (previously $370-$450 million), resulting in adj. free cash flow (FCF) of $350-$420 million (up from $330-$410 million). (Importantly, we highlight that, at the midpoint, management’s FCF outlook implies a current yield of ~14.5%; see Exhibit #2 on page 2).

Underlying assumptions include light vehicle production being down flat to up 2%, a Euro/Dollar exchange rate of 1.13 (versus previous guide of 1.16 and compared with 1.08 in 2024), RD&E investments and capital expenditures at 4.2% of sales (compared with ~4.5% in 2024) and 2.5% of sales, respectively (of which ~50% and 25% will be focused on zero emission technology).
Our base case fair value estimate for GTX increases to $16 per share (up from ~$14 per share), reflecting an 8.5x multiple on our 2027E adjusted net income forecast and a fully diluted share count of ~170 million (see Exhibit #3 on page 2).

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service.

MODG is reportedly exploring the sale of its Callaway golf business amid the on-going (albeit delayed) process to separate its Equipment & Entertainment Businesses; maintain $11 per share fair value estimate

Today, it was reported by Bloomberg that Topgolf Callaway (NYSE: MODG) is exploring the potential sale of its Callaway golf equipment brand.

This development comes in the context of the sale of its Jack Wolfskin athletic apparel brand to ANTA Sports for $290 million in cash in June 2025 (which, by our calculation, valued the business at ~21x 2025E adj. EBITDA and 0.8x sales) as well as the resignation of chief executive officer (CEO), Artie Starrs, in July 2025, which precipitated the delay of its previously announced separation (from September 2024), via sale or spin-off, until 2026 (rather than late-2025).

Our base case fair value estimate for MODG remains $11.00 per share, reflecting a blended multiple of ~8.5x multiple on our 2026E adjusted EBITDA of ~$523.5 million and net debt of ~$2.2 billion (see Exhibit 1 on page 2).

PCS Research Group welcomes and encourages your feedback.  Please feel free to call us if we can be of service

WBD to Review Strategic Alternatives while Continuing to Advance Toward a Separation  

On October 21, 2025, Warner Bros. Discovery, Inc. (NASDAQ: WBD), a global media & entertainment company that announced plans to separate its Streaming & Studios and Global Networks businesses in a tax-free transaction in June 2025 (with a projected completion date in mid-2026), indicated that its Board had authorized a review of strategic alternatives aimed at maximizing shareholder value following what it describes as the reception of “unsolicited interest” from “multiple parties for both the entire company and Warner Bros.”.

Concurrent with the strategic review, which will evaluate a range of transactions, including a sale of the entire company as well as separate deals for either Warner Bros. and/or Discovery Global, the company will continue to advance the previously announced tax-free spin-off.  Notably, as part of this apparent dual-track strategy the company will also consider an alternative structure for the potential spin-off that would essentially switch the current parent/spin dynamic (i.e., Warner Bros. as the Parent with Discovery Global as the SpinCo), which could more expeditiously facilitate a merger for the post-spin parent, which, in this scenario, would be Warner Bros.

For context, since the initial spin announcement in June 2025 and amid more recent speculation across the business press that WBD had attracted interest from strategic buyers, including Paramount Skydance Corp. (NASDAQ: PSKY), which has been rumored to have offered a bid in the low-$20’s per share range, WBD’s stock has roughly doubled from under $10 per share to its current price approaching $20 per share.  Along with PSKY, it has also been reported that the company has received interest from private-equity firm Apollo Global Management (NYSE: APO), which controls Legendary Entertainment, and we have seen unconfirmed speculation of potential interest from both Netflix (NASDAQ: NFLX) and Apple (NASDAQ: APPL).  Additionally, we highlight that the potential change in spin-off structure (i.e., spin becomes the parent) could also present an opportunity for interest from Comcast Corp. (NASDAQ: CMCSA), which is still targeting the tax-free spin-off of selected cable assets, including CNBC, MSNBC, USA, The Golf Channel, E!, SYFY, Oxygen as well as Fandango, Rotten Tomatoes, GolfNow & Sports Engine, by the end of 2025.  (Anecdotally, in our conversations with clients we have long advocated for a similar spin-off structure change at CMCSA given our preference in this evolving media environment, at least from a near-term shareholder perspective, toward the “consolidated” rather than the “consolidators”.)  

ULVR Shareholders Approve Spin; Transaction Completion Delayed due to U.S. Government Shutdown 

On October 21, 2025, Unilever PLC (ULVR LN) shareholders approved the upcoming demerger (and share consolidation) of The Magnum Ice Cream Company, which is expected to be listed under the ticker “MICC” on the Euronext Amsterdam exchange (with secondary listings in both London and New York).  That said, given a delay in the declaration of effectiveness for its U.S. registration statement with the Securities & Exchange Commission (SEC) due to the on-going U.S. Government shutdown the company has pushed back the transaction’s completion date, which was expected to be on November 10^th.   While the specific timing remains uncertain (and ultimately dependent on SEC approval) the company has indicated its commitment (and confidence) that the transaction will still be completed in 2025.

In terms of deal specifics, Unilever shareholders are expected to receive one share of MICC for every five Unilever (ULVR) shares held on the record date (which was initially expected to be in early November 2025). As well, Unilever is expected to retain a 19.9% non-voting stake in MICC, which it has signaled its intent to wind-down/monetize over a no more than 5-year time period, post-transaction. [Note: To preserve comparability of key financial metrics, such as EPS, DPS, and share price, Unilever will undertake a share consolidation immediately following the spin.]

HON’s Board Approves Solstice Spin-Off; Completion Date Set for October 30^th; Maintain $245 FVE

This morning, before the market open, Honeywell International Inc. (NASDAQ: HON) announced that its Board had approved the tax-free spin-off of its Advanced Materials business, which will be named Solstice Advanced Materials Inc. and trade on the Nasdaq Stock Exchange (NASDAQ) under the ticker “SOLS”.  Shareholders of record will receive one share of SOLS for every four shares owned of Honeywell, which will continue to trade under the same listing and maintain the current corporate moniker. So-called “when-issued” trading is expected to begin trading on October 20^th under the ticker “SOLSV” with “regular-way” trading commencing on (“or about”) October 30, 2025.  

For its part, Solstice (currently the Advanced Materials portion of HON’s Energy & Sustainability Solutions segment) generated ~$3.8 billion of sales in 2024, split roughly 70%/30% between Refrigerants & Applied Solutions and Electronics & Specialty Materials, with adj. standalone EBITDA of nearly $1.0 billion (on a margin of 26.4%).  For 2025E, the standalone company is anecdotally projected to post annual sales of $3.75-$3.85 billion, with a projected EBITDA margin of ~25%, implying, by our calculation, adj. 2025E EBITDA of ~$935-$965 million.  RemainCo (or NewHoneywell), which includes the Aerospace segment as well as the broader Automation business (including the UOP portion of HON’s current E&SS segment) will be comprised of two segments, each generating roughly ~$17 billion of sales and ~$4.5-$5.0 billion of segment-level adjusted EBITDA.  

On a sum-of-the-parts basis, we fairly value pre-spin HON at ~$245 per share, consisting of $16 per share for Solstice and $229 per share for NewHoneywell (see Exhibit 1).  On a post-spin basis, reflecting the four-for-one distribution ratio, shares of Solstice are fairly valued at ~$63 per share (based on a diluted share count of ~160 million), with NewHoneywell at ~$229 per share (based on a diluted share count of ~641 million).  Given the implied upside, we, again, recommend a pre-spin purchase of HON shares but would note that we think it is possible that post-spin shares of Solstice, which may have longer-term opportunities to participate in potential industry consolidation, may struggle to gain initial traction while it accumulates its own individual shareholder constituency (and index inclusion); to that end, it also seems reasonable to assert that the bulk of current HON shareowners are primarily focused on the larger Aerospace and Automation businesses.  (In that context, while purely anecdotal and not necessarily a reflection of the current HON investor interest/sentiment in the standalone Solstice business, we would note that attendance at SOLS’s investor day in NYC was, in our opinion, sparse.) 

For context, this transaction comes within the backdrop of both company specific activist-investor pressure as well as a seemingly broader apathy on the part of investors toward so-called “multi-industry” conglomerates, such as HON.  To that end, it is notable to point out that Dupont is on the verge of completing a step in its own journey toward a simpler, more focused portfolio with the impending spin-off of Qnity Electronics. Additionally, a long list of other companies have generated substantial overall shareholder value by reducing complexity in recent years, including, among others, Danaher, GE, United Technologies, Tyco, Ingersoll Rand, Johnson Controls, Pentair and ITT.  In that context, while we would assert that the impending spin-off of Solstice will be an incremental positive when considering the obvious size disparity between SpinCo & RemainCo, the transaction is likely to represent just the opening salvo in a wider value-unlocking process that will stretch into late-2026/early-2027. Other impending portfolio actions include the potential monetization of PSS and WWS, which will simplify the future standalone Automation company, as well as the planned spin-off of the Aerospace business and the latent potential for an initial public offering (IPO) of Quantinuum, representing other key milestones in a potentially significant multi-year re-rating process for legacy HON. 

Please refer to The Spin-Off Report dated October 14, 2025 for more details/perspective. 

DuPonts’s Board (DD) Approves the Qnity Spin-Off; Completion set for November 1^st (with an October 22^nd Record Date); Maintain $96.50 FVE

Last night, after the market close, DuPont de Nemours, Inc. (NYSE: DD) announced that its Board had approved the tax-free spin-off of its Electronics business, which will be named Qnity Electronics, Inc. and trade on the New York Stock Exchange (NYSE) under the ticker “Q”.  As previously disclosed, the transaction is expected to be completed on November 1, 2025, with “regular-way” trading commencing on November 3, 2025.  Shareholders of record, as of October 22, 2025, will receive one share of Qnity for every two shares of Dupont owned.   (In connection with the spin-off, Q declared the previously announced cash dividend of $4.122 billion while also pre-funding $66 million of other obligations to their soon-to-be former parent, which, as of November 3, 2025, will continue to trade under the same NYSE listing as well as maintain the current corporate moniker.)

Our sum-of-the-parts, pre-spin valuation for DD remains ~$96.50 per share (see Exhibit 1), consisting of ~$48 per share for Qnity and ~$48.50 per share for NewDupont. On a post-spin basis, reflecting the 1-for-2 distribution ratio, shares of Qnity are fairly valued at ~$96 per share (based on a diluted share count of ~210 million) with NewDupont at ~$48.50 per share (based on a share count of ~420 million).  Given the implied upside to our fair value estimate, along with our expectation of a relatively orderly debut for both companies (given their relative size and overall market visibility) our pre-spin recommendation remains BUY.  In terms of trading intricacies, from October 27^th thru the 31^st, there will be two markets for DD; the first, a “regular-way” market under the current ticker (DD), which will include the right to receive shares of Q as well as a so-called “ex-distribution” (or “when-issued”) market trading under the ticker “DD WI” that will be exchanged without any claims to post-spin Q.  As well, just from a technical perspective, if one sells their “regular-way” shares of DD on or before the last trading day prior to distribution (i.e., before October 30^th) they will forfeit the right to receive an interest in post-spin Qnity.

For reference, post-spin, NewDuPont, including the impending $1.8 billion sale of Aramids, is expected to generate ~$6.9 billion in 2025E sales, which are roughly evenly split between the Water & Healthcare and Diversified Industrial businesses, with adj. operating EBITDA of ~$1.6 billion (or a margin of ~23.6%) while Qnity Electronics is expected to post 2025E sales of ~$4.6 billion, again, roughly split between Semiconductor Technologies and Interconnect Solutions, with adj. operating EBITDA of ~$1.4 billion (or a margin of ~30%).  Beyond the standard rationale of improved management/strategic focus, enhanced operational flexibility, optimized capital structures & capital allocation policies, one could summarily characterize NewDupont as the slower-growing concern, at least from a top-line perspective (i.e., 3%-4%), and lower-margin (i.e., ~23.5%), albeit with less capital intensity (i.e., cap ex at 3% of sales and free cash flow conversion of ~90%). Also, it will have a higher level of committed capital returns (i.e., a dividend payout ratio of 35%-45%), as well as a lower leverage profile (i.e., less than 2.0x). Additionally, NewDupont expects to maintain an investment grade credit rating (i.e., BBB+) and is a component of the S&P 500 Index.  In comparison, Qnity is the relatively higher growth, higher margin business (i.e., 6%-7% and ~30%, respectively), albeit with a higher expected leverage profile (i.e., closer to 3.0x), as well as a lower committed shareholder return profile (i.e., a ~10% dividend payout ratio and a free cash flow conversion ratio of ~65%) and a non-investment grade (i.e., BB+) credit rating.  (Just as an aside, simply for context and clearly not a statistically significant indicator of overall investor sentiment or early trading activity, we would note that the Qnity presentation at DD’s recent investor day was noticeably better attended than the earlier NewDupont portion of the event.)

Please refer to The Spin-Off Report dated October 8, 2025 for more details/perspective. 

JNJ Announced its Intent to Separate its Orthopedics Business Over the Next 18-24 Months

On October 14, 2025, Johnson & Johnson (NYSE: JNJ), a global pharmaceutical company, announced its intention to separate its orthopedics business (currently housed within the MedTech segment) over the next 18-24 months (i.e., mid-to-late 2027), subject to customary conditions, including final Board approval. While management’s presumed structure for the transaction is a tax-free spin-off, the company will simultaneously explore a range of avenues to “optimize” shareholder value, including a sale (i.e., a dual-track process).  As a separate entity, the orthopedics business, which generated ~$9.2 billion of revenue in 2024 (or ~10% of consolidated sales) and focuses on hip & knee replacements as well as spinal equipment, will operate as DePuy Synthes and be led by Mr. Namal Nawana (who is an experienced MedTech executive that previously spent 15-years at JNJ).

Beyond the standard rationale of improved management/strategic focus and enhanced operational flexibility we note that the announcement comes within the context of JNJ’s multi-year effort to focus on higher-growth and higher-margin products/markets.  To that end, management anecdotally indicates that the DePuy Synthes separation “will further strengthen our overall MedTech business, and increase Johnson & Johnson’s top-line growth and margins”. Further, the company elaborated for a degree of directional context, that if one looks at “normalized year-to-date 2025 results, MedTech’s top-line revenue growth and operating margin would both improve by at least 75 basis points” without the impact of orthopedics.  (For a degree of additional historical context, recall JNJ competed the tax-free spin-off of its consumer-health business, Kenvue Inc. (NYSE: KVUE) in August 2023.)

Currently JNJ operates two business segments: 1) Innovative Medicine, which generated ~$57 billion in sales and ~$19 billion of adj. segment operating profit on a ~33% margin in 2024 (comprising roughly 64% of consolidated sales and ~84% of operating profit) and focuses on several therapeutic areas, including oncology, immunology, neuroscience, pulmonary hypertension, cardiovascular & metabolism, and infectious diseases; and 2) MedTech, which generated ~$32 billion of sales and $3.75 billion of adj. segment operating profit on a margin approaching ~12% (comprising the remaining 36% and 16.5% of consolidated sales and segment op. profit, respectively), which includes a broad portfolio of products used in the cardiovascular, orthopedics, surgery and vision fields.

In terms of guidance, in conjunction with the spin-off announcement (and quarterly results), JNJ increased its full-year 2025E outlook, which calls for consolidated top-line growth of 5.4%-5.9% to of $93.5-$93.9 billion (compared with the previous outlook of $93.2-$93.6 billion) with adjusted EPS growth of 8.2%-9.2% to $10.80-$10.90 (in-line with its previous outlook).  The company projects adj. pre-tax operating margin expansion of ~300 basis points as well as an effective tax rate of ~17.5%-18%. 

In terms of valuation, JNJ’s Innovative Medicine segment could be compared with a range of other large-cap Pharma concerns, including AbbVie Inc. (NYSE : ABBV), Amgen Inc. (NASDAQ: AMGN), AstraZeneca plc (AZN LN), Bristol-Myers Squibb Co. (NYSE: BMY), Eli Lilly & Co. (NYSE: LLY), GlaxoSmithKline plc (GSK LN), Merck & Co., Inc. (NYSE: MRK), Novartis AG (NOVN SW), Pfizer Inc. (NYSE: PFE), Roche Holding Ltd (ROG SW), and Sanofi (SAN FP), which trade, on average, at 13x 2026E EPS (in a range of 7.5x-27x) and ~11.0x 2026E EV/EBITDA (in a range 7x-23x).  Peers to the MedTech business could include Alcon, Inc. (ALC SW), Bausch & Lomb Inc. (NYSE: BLCO), Boston Scientific Corporation (NYSE: BSX), The Cooper Companies, Inc. (NASDAQ: COO), Intuitive Surgical, Inc. (NASDAQ: ISRG), Medtronic plc (NYSE: MDT), Smith & Nephew plc (SN LN), Stryker Corporation (NYSE: SYK), and Zimmer Biomet Holdings, Inc. (NYSE: ZBH), which trade, on average, at 19x 2026E EPS (in a range of 11.5x-28x) and 16x 2026E EV/EBITDA (in a range of 10x-33x).

Applying a blended multiple of ~17.0x to 2026E adj. EPS that is roughly in-line with current consensus forecasts yields a preliminary, base case, sum-of-the-parts valuation of ~$194 per share (based on a diluted share count of ~4.2 billion).

CTVA to Separate its Crop Protection & Seed Businesses via a Tax-Free Spin-Off in 2H 2026

On October 1, 2025, before the market open, Corteva, Inc. (NYSE: CTVA), a global agricultural company that was spun off from Dupont de Nemours, Inc. (NYSE: DD) in June 2019, announced plans to separate its Crop Protection (i.e., NewCorteva) and Seed (i.e., SpinCo) businesses into two publicly-traded entities via a tax-free transaction that is expected to be completed in 2H 2026, subject to customary conditions, including final Board approval.

Beyond the standard rationale of improved management/strategic focus, enhanced operational flexibility, optimized capital structures & capital allocation policies the company indicates that the separation will better equip NewCorteva (i.e., Crop Protection), which is projected to generate ~$7.8 billion of sales in 2025 with adj. operating EBITDA of ~$1.35 billion (implying a ~17% margin), to compete, largely via investments in innovation, within an increasingly competitive market while SpinCo (i.e., Seed), which is projected to generate ~$9.9 billion of sales in 2025 with adj. operating EBITDA of $2.6 billion (implying a ~26% margin), will become a “classic growth compounder”.  In terms of leadership, CTVA’s current Board Chairman, Greg Page, will become the Chair of NewCorteva while CTVA’s current chief executive officer (CEO) will assume the helm at SpinCo.  Both companies are targeting investment grade credit ratings on a standalone basis, while NewCorteva will retain all legacy liabilities, including historical Dupont pension plans as well as all PFAS (i.e., “forever chemical”) obligations, which we cursorily estimate are likely capped at ~$200 million (but also subject NewCorteva to an ~$833 minimum EBITDA restriction). 

Currently, CTVA operates two business segments: 1) Seed (~56.5% of consolidated sales and ~63.5% of adj. operating EBITDA in 2024), which provides seeds for a range of agricultural products, including, among others, corn, soybeans and sunflowers throughout the U.S., Canada, Europe, the Middle Wast & Africa, Latin America and Asia; and 2) Crop Protection (~43.5% of consolidated sales and ~36.5% of adj. operating EBITDA in 2024), which provides a range of products, including herbicides, insecticides, nitrogen stabilizers and other biologicals that broadly support crop health/productivity.

In terms of guidance, which was reaffirmed in conjunction with the spin-off announcement (excluding ~$80-$100 million of expected dis-synergies), CTVA projects full year 2025E consolidated net sales growth in the “mid-single digits” with operating EBITDA of $3.75-$3.8 billion (previously $3.6-$3.8 billion), implying ~13% year-over-year growth at the midpoint and ~150 basis points of margin improvement.  Operating EPS is expected to be of $3.00-$3.20 (previously $2.70-$2.95), implying year-over-year of ~21% at the midpoint, while free cash flow conversion is projected to be ~50% (up from the previous expectation of ~40%-45%).  As well, the company seemingly remains on track to repurchase ~$1 billion worth of shares in full year 2025E, which, including dividends, portends a ~$1.5 billion annual total return to shareholders. Depreciation & amortization expense is expected to be ~$635-$645 million with net interest expense of $95-$105 million, capital expenditures of ~$660 million, a base tax rate of 22%-24% and a diluted share count of 681-683 million.  From a longer-term perspective, the company has targeted ~$1 billion of incremental net sales from “growth platforms” in 2025-2027 and an average of 100 basis points of EBITDA margin improvement per annum, implying a 2027E margin of ~23%-25%.

Primary players in the wider agricultural sector include, CF Industries (NYSE: CF), FMC Corp. (NYSE: FMC), Nutrien Ltd. (NYSE: NTR), which merged with PotashCorp in 2018 at an implied valuation of ~9.5x, Mosaic Company (NYSE: MOS), Intrepid Potash (NYSE: IPI), Bayer AG (BAYN GR), which purchased Monsanto in 2016 at ~16x, ChemChina (private), which purchased Syngenta in 2016 for ~16.5x, Yara International (YAR NO), K+S AG (SDF GR), Sociedad Quimica y Minera de Chile (NYSE: SQM), and ICL Group (NYSE: ICL), which, as a group, trade, on average of ~7x 2026E EV/EBITDA (in a range of 5x-8x).  Applying a 13x multiple to the higher-margin Seed business and a peer 7.0x multiple to the Crop Protection business implies segment values of ~$44.5 billion and $9.5 billion, respectively. Accounting for corporate costs as well as projected net debt yields a sum of the parts value of ~$51.0 billion or ~$75 per share (based on a diluted share count of ~683 million).

KBR to Separate its Mission Technologies Business in a Tax-Free Spin-Off Expected to be Completed in Mid-to-Late 2026

On September 24, 2025, KBR, Inc. (NYSE: KBR), a global IT services contractor, announced plans to separate its government-focused Mission Technology Solutions (MTS) business from its energy & infrastructure focused Sustainable Technology Solutions (STS or NewKBR) business via a tax-free spin-off that is expected to be completed in “mid-to-late” 2026 (i.e., 2H 2026), subject to customary conditions, including regulatory approvals and final Board approval (a group that unanimously approved today’s announcement).  

Beyond the standard rationale of improved management/strategic focus, enhanced operational flexibility, optimized capital structures & capital allocation policies we would note that this step is likely the culmination of KBR’s multi-year transformation efforts aimed at focusing on an asset-light business model with differentiated/proprietary (i.e., less commoditized) solutions that generate stable/predictable cash flows.  To that end, one could surmise that beyond the contention that this transaction will unlock value (and the existence of limited discernable inter-segment synergies) a secondary motivation would be to reduce NewKBR’s exposure to fluctuations in federal IT spending, which has been a recent overhang for the group (although we would note that MTS (i.e., SpinCo) generates ~75% of its sales from the defense, intelligence & space sectors, which tend to be of higher priority as compared to other government verticals).  Additionally, we would note that in December 2024, activist investor Irenic Capital, purportedly a ~1% holder, announced plans to push KBR to separate its MTS and STS segments (and/or potentially seek Board representation).  Subsequently, in January 2025, KBR announced a segment realignment, which among other things, resulted in the former Government Solutions segment being renamed Mission Technology Solutions (MTS).

KBR currently operates two business segments: 1) Sustainable Technology Solutions (STS), which generated $2.2 billion in sales and ~$479 million of adj. EBITDA (i.e., a 22% margin) in the trailing 12-months (TTM) ended 2Q 2025 and is focused on sustainable solutions for the energy & critical infrastructure sectors; and 2) Mission Technology Solutions (MTS), which generated ~$5.8 billion of sales and $571 million of adj. EBITDA (or a ~10% margin) in the TTM ended 2Q 2025 and is a pure-play government services contractor with a particular focus on national security solutions for the defense, intelligence and space arenas.  In terms of guidance, in conjunction with the spin-off announcement, KBR maintained its current full-year 2025E outlook, which calls for consolidated sales of $7.9-$8.1 billion, adjusted EBITDA of $960-$980 million, adjusted EPS of $3.78-$3.88 and operating cash flows of $500-$550 million. As well, for some broader context, management has previously articulated 2027E targets calling for consolidated sales of ~$9 billion, underpinned by top-line CAGRs of 11%-15% at STS and 5%-8% at MTS, with adj. EBITDA of ~$1.15 billion, implying adj. EBITDA margins of 20%-plus at STS and 10%-plus at MTS.  On the cash flow front, management expects cumulative deployable free cash flow generation of ~$2.0 billion (between 2024-2027). 

In terms of post-spin leadership, current KBR president & chief executive officer (CEO) will remain at the helm of NewKBR as well as maintain his position as the Board’s chairman.  Current KBR chief financial officer (CF), Mark Soop, will lead the spin-off transition effort and, as of January 5, 2026, will be succeeded as CFO by Shad Evans, currently the senior vice president (SVP) of Finance and formerly the CFO of the STS business unit.  The company has engaged a professional search firm to aid in the selection of post-spin MTS’s leadership.    

In terms of valuation, KBR could be compared with a range of government & commercial information technology (IT) contractors, including Booz Allen (NYSE: BAH), CACI International (NYSE: CACI), Leidos Holdings (NYSE: LDOS), Parsons Corp. (NYSE: PSN), Science Applications International (NASDAQ: SAIC) and Amentum Holdings (NYSE: AMTM), which was spun-off from Jacobs Solutions (NYSE: J) as a pure-play government contractor in September 2024, as well as Gartner, Inc. (NYSE: IT), Tetra Tech, Inc. (NASDAQ: TTEK), Accenture (NYSE: CAN), Cognizant Technology Solutions Corp. (NASDQ: CTSH), Capgemini (CAP FP), Infosys Ltd. (NYSE: INFO), Wipro (WPRO IN) and Tata Consultancy Services (TCS IN), which trade at ~11.5x 2026E EV/EBITDA (in a range of 8.0x-15.0x). 

Applying a blended multiple of ~10.0x EV/EBITDA to 2026E adj. EBITDA, which reflects a multiple roughly in-line with peers to the faster-growing, higher margin STS business and a modest discount to MTS, implies values of ~$5.5 billion and ~$4.85 billion, respectively. Accounting for projected net debt yields a preliminary, base case, sum-of-the-parts valuation of ~$8.1 billion or ~$63 per share (based on a diluted share count of ~129 million).

Upgrade RAL to BUY (from NEUTRAL) With Shares Seemingly Attractively Priced Off Trough Earnings & Ahead of a Potential Cyclical Upturn at the T&M Segment (as well as RAL’s Overall Exposure to Several Secular Growth Areas)  

Ralliant Corp. (NYSE: RAL) completed its tax-free separation from Fortive Corp. (NYSE: FTV) in late June 2025; since that time, amid initial technical factors as well as the reality that a portion of RAL’s underlying business, primarily within the Test & Measurement (T&M) segment, is in the midst of a relatively prolonged (but flattening to inflecting) cyclical downtrend (from both a top-line & margin perspective), shares have declined ~21% since its debut (underperforming the S&P 500 and Russell 2000 by ~28% and 32%, respectively).

In that context, with shares currently trading at ~12x 2026E EV/EBITDA and 16x 2026E EPS, a notable discount to all relevant peers, we contend shares are attractively priced, particularly off what we view as trough earnings and ahead of what is expected to be cyclical recovery in looking into 2026E (following a nearly two-year period of consecutive quarters of year-over-year organic sales declines that have left industry-wide T&M volumes ~25%-30% below 2023 levels).   On a comparative basis, the higher-margin Sensors & Safety Systems (S&S) segment, which accounts for ~60% of consolidated sales at RAL, has posted relatively steady (albeit modest) core growth over the last several years.

While we are admittedly only modeling a relatively gradual slope of top-line improvement looking in 2026E (as opposed to a more V-shaped recovery) it strikes us that the risk to our numbers is likely to the upside, particularly given the depth/length of the downturn at T&M as well RAL’s exposure to secular demand trends, including grid modernization/new power demand, space & defense and electrification, among others (see Exhibit 3 on page 5).  Moreover, considering that incremental margins on organic growth have historically (i.e., pre-spin) ranged in the 45%-50% area management’s current 30%-35% commentary/target could prove somewhat conservative.

Succinctly, we upgrade shares to BUY (from NEUTRAL) as we think shares currently offer an attractive opportunity to purchase a “beaten-down” but high-quality, and now pure-play SpinCo that is trading at a historically low multiple (as well as a notable discount to peers) amid a cyclical downturn but ahead of what seems to be the cusp of a modest cyclical recovery (see Exhibits 1 & 2 on pages 3-4).