How To Profit From Barclay's Latest Analyst Report On KBR Inc. (NYSE: KBR)

Analyst Andy Kaplowitz of Barclays Capital is maintaining his equal weight on KBR Inc. (NYSE: KBR) shares after they reported their 4Q09 earnings. Andy is focusing on the strong backlog that should overshadow a "messy" 4Q. Shares of KBR closed Thursday at $20.34 per share. Mr. Kaplowitz is reissuing his $26 price target on the shares.

He explains in his report by stating, "While KBR's 4Q09 was expectedly messy with numerous one-time items (esp. given its $0.50/shr LOGCAP charge announcement earlier this week), we still think the biggest takeaway is the strong ending backlog that highlighted the company's ability to grow in the absence of large headline project wins, (in fact, mgmt mentioned that 50% of bookings in 2009 came from scope increases on existing projects) esp. as LOGCAP
work continues to wind down in 2010."

How To Buy KBR: Put Odds In Your Favor
If you believe in his price target and want to get in, we think a great way to do this is through selling puts in the stock. The March-2010 20-strike put are trading at $0.50 per share.

This means that if the stock stays over 20, you won't get filled on expiration and you keep the $0.50. If the stock closes below 20, 21 days from now on expiration, then you must buy the shares for $20, no matter what price they are. So your average price, or break even, will be the $20 minus the 50c premium, or $19.50 per share. You get paid to buy the stock in essence.

Now if you get to do this every month, and the stock hovers over $20.00 per share without closing below it on expiration, you could rake in a lot of premium. If you do it for 5 months with an average premium of 50c, you'd bring in $2.50 per share. So if you were forced to buy at $20 when the shares were trading at $19, you could still sell the shares for $19 at a profit. Your average price per share would be $17.50, and you'd keep the $1.50 gain!

Read up on KBR's 4Q earnings from this morning.