RBC Capital analyst Ken Herbert is framing a recent sector-wide decline in defense technology equities as a buying opportunity, with a particular preference for KBR and Mercury Systems (MRCY). The selloff, which averaged about 14% across defense tech names and included a roughly 22% drop for Mercury Systems, has left some stocks trading near multimonth lows and, in KBR's case, close to its 52-week low.
Herbert points to valuation signals that support his constructive stance. KBR is trading at a price-to-earnings ratio of 13.3 and posts a low PEG ratio of 0.61, metrics that suggest the stock may be attractively valued relative to its growth profile. Data from InvestingPro shows KBR has delivered dividend payments for 18 consecutive years, offering an income component alongside the company's growth trajectory.
According to the analyst, the recent selloff appears driven by a mix of investor rotation, budget appropriation uncertainty and timing risks on program execution. Herbert observed that investors have been reallocating capital toward deep cyclical or early-cycle names after stronger-than-expected February ISM readings, and that confusion around FY26 Department of War budget appropriations may have exacerbated market reaction even though final funding levels reportedly aligned with expectations.
Correlation with the wider technology sector also weighed on defense tech shares, Herbert noted, as many defense suppliers move in step with broader tech trends that experienced headwinds over the same period.
Operational and timing risks
Mercury Systems has publicly flagged ongoing supply chain challenges as it works to ramp production across multiple programs. That dynamic contributes to timing risk in the sector and helps explain some of the pronounced share-price moves, according to the analyst.
Despite these near-term frictions, RBC Capital retains a broadly positive view on defense-related names into the near term and sees improving mid-term visibility heading into 2026. Herbert singled out defense tech merchant suppliers as particularly well positioned following the pullback, with KBR and Mercury Systems representing preferred ideas in his coverage.
Sector catalysts and company developments
Herbert also identified a sector-positive operational development from RTX, whose announced framework contemplates a 2-4x volume increase across five missile programs. The analyst sees that as a constructive signal for industry demand and for merchant suppliers within the defense technology supply chain.
KBR itself has accumulated a string of contract awards that underscore its activity across defense and energy workstreams. Recent wins cited include a $350 million Technical Support Services contract from the U.S. Geological Survey for technical solutions at the Earth Resources Observation and Science Center in South Dakota, and a $149 million award from the Air Force Life Cycle Management Center to support digital transformation at Eglin Air Force Base in Florida. KBR was also named on the Missile Defense Agency's SHIELD contract, a large-scale $151 billion program focused on advanced military capabilities. Outside defense, KBR secured a front-end engineering design contract for the Coastal Bend LNG export facility on the Texas Gulf Coast, a project described as aiming to reduce greenhouse gas emissions.
Not all market participants are moving in one direction on KBR. Truist Securities has trimmed its price target for the company to $50 on account of the suspension of the Lake Charles LNG project, though Truist retained a Buy rating on the stock.
Valuation and investor takeaway
Herbert's thesis rests on the combination of a sector pullback, attractive absolute and relative valuation metrics for selected names, and positive program-level developments that could support improving activity into 2026. KBR's P/E and PEG ratios, along with its long-standing dividend record shown in InvestingPro data, are cited as factors supporting the firm's preference for the stock after the recent price decline.
At the same time, the analyst emphasizes that budget clarity, supply chain execution and the correlation with broader technology equity trends will remain important variables for investors assessing timing and risk in the defense tech patch.