To The Moon

US stocks notched records and extended impressive streaks Friday as $Netflix(NFLX)$ delivered powerful earnings and set the stage for Big Tech's corporate results in the coming days.

The $.SPX(.SPX)$ added about 0.4% and recorded a fresh all-time high, as well as its sixth straight week of gains, the longest streak in 2024. The tech-heavy $.IXIC(.IXIC)$ moved up 0.6%, leading gains. $.DJI(.DJI)$ rose 0.1% after hitting a new closing high the day before. The best-performing concepts is COAL & Consumable Fuels.

Considering the different perceptions of the stock, this time TigerPicks chose $Centrus(LEU)$ to have a fundamental highlight to help users understand it better.

$Centrus(LEU)$

Centrus Energy Corp. supplies nuclear fuel components and services for the nuclear power industry in the United States, Belgium, Japan, and internationally. The company operates through two segments, Low-Enriched Uranium (LEU) and Technical Solutions.

The LEU segment sells separative work units (SWU) components of LEU; natural uranium hexafluoride, uranium concentrates, and uranium conversion; and enriched uranium products to utilities that operate nuclear power plants. The Technical Solutions segment offers technical, manufacturing, engineering, and operations services to public and private sector customers.

Centrus is the only company licensed and able to produce the 20% enriched uranium needed to fuel the new small modular reactors. It's one of two companies licensed to make the 5% enriched fuel required for the older style reactors already operating and the only one using American technology, which is a big deal.

Centrus has a solid balance sheet, an established profitable nuclear fuel supply business, two production sites, and a staff of experienced, qualified, and security-vetted nuclear technicians and scientists. In November, they delivered their first quantity of 20% enriched fuel, making them one of a handful of producers outside Russia.

If the nuclear industry grows as expected, Centrus will likely be a big winner; regardless of which new nuclear technology wins or which company gets its old nuclear power stations running, they all need fuel, and at the moment, Centrus is the only game in town.

US Enrichment the Road Back from the Brink

A critical competitive advantage for Centrus is the requirement of the US government for enriched Uranium. Since the closure of the US's final enrichment plant, the DOE and the DOD have relied on the stockpile of Cold War-Era enriched Uranium. This is a finite resource constantly being drawn down. The US has non-proliferation agreements that "prohibit the use of foreign-origin enrichment technology for US national security missions." (LEU 10K FY 2023). Centrus has the only enrichment centrifuge that meets the needs of the US military requirements, a significant competitive advantage over its European competitors and an incentive for the government to give it future awards.

In Oct 2023 Centrus restarted enrichment operations at its Piketon, Ohio site (the one closed in 2013) and began producing America's first homemade HALEU. Centrus delivered the first batch of HALEU to the government in November. (FY 2023 10K)

Centrus constructed the newly designed enrichment facility, a cascade of 16 AC100M centrifuges, with the money from a 2019 demonstration contract awarded by the DOE. The contract has been expanded beyond the scope of demonstration and moved to an operational one with incremental funding taking the investment to $180 million. Operations are being repeatedly held up by the DOE's inability to source withdrawal cylinders needed to contain and transport the enriched fuel.

In January 2024, the DOE requested additional RFPs for the expansion of HALEU production, I know of three bidders, but only Centrus is currently enriching with proven technology, an experienced workforce and a long history in the industry. Further RFPs are available for the conversion of HALEU and the enrichment of LEU. Centrus has responded to all three government initiatives.

I consider Centrus to be a front-runner in getting these new awards.

Centrus plans to scale up its production facility on a modular basis. Being the first to prove it can operate safely at scale is a huge advantage, along with its large and experienced workforce. Technically qualified, competent workers are in severe shortage in this industry, and the existing workforce at its two sites is a significant competitive advantage.

Risks

It is the Nuclear industry, the world is all too aware of the risks and the consequences of error, no commercial operation could likely survive a significant nuclear incident without wiping out its shareholders.

Centrus has some company-specific risks.

Substantially all of its current revenue is dependent on the Tenex supply agreement, if Russia carries out its threat to ban these exports or the US government does not continue to offer a waver until Centrus has fully developed its enrichment facility then Centrus would likely not be able to meet its long term sales contracts and may lose them to competitors.

The operating HALEU cascade has been built at the Piketon site, a site Centrus leases from the US government. If they were required to vacate the site, they would have to lay off their workforce and probably lose their operating license. This sounds far-fetched, but it is a threat. If the government awards the contracts for the RFPs to another company they would likely want them to operate on the Piketon site, few places are authorized for this type of work.

Centrus may not be awarded the new contracts but be allowed to keep the Piketon site. If so, it would have increased costs and an additional competitor to consider.

The Centrus balance sheet has significant long-term liabilities and has been dogged by unfunded pension liabilities.

Finances

This bullish thesis is based on sales growth of enriched Uranium due to a changing industry. The recent financial results for Centrus suggest this scenario is beginning to play out. The revenue graph below shows a marked uptick and is pointing higher. Net income has been positive since 2020, but FCF has not yet made the gains suggested by revenue growth.

In Q2 Centrus reported significant YoY growth; revenue in both segments was up over 100%, and net income up over 70%. The CFO said this was in line with internal projections noting Centrus generated positive cash flow highlighting the impact of transitioning from a cost-share basis to a cost-plus incentive model for the production of HALEU. The company raised $12 million on the ATM adding to the $7 million raised in Q1.

Centrus results are challenging to interpret quarterly; customers do not take delivery every quarter or year, so growth this quarter does not necessarily imply a longer-term trend. We should look at results annually and consider the TTM figure rather than the last quarter.

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Centrus still has significant long-term liabilities and its total debt of $170 million is large relative to its market cap of $640 million, however, Centrus earns more interest than it pays so servicing the debt should not be an issue.

Conclusion

The nuclear age appears to be restarting and the US is having to play catch up, having closed its enrichment facilities in 2013 and relying on Russian production ever since.

The demand for increased electricity and a desire to move away from fossil fuels make the case for nuclear fuel compelling. US utilities are investigating bringing closed reactors back online, and several companies are developing a new breed of small modular reactors that offer increased safety and lower costs.

All of these reactors need fuel. Centrus is one of two organizations certified to produce LEU in the US and the only one able to enrich above 5% and produce HALEU. The other producer is URENCO, the European owned company unable to supply product to the US government.

The US government has ambitious plans to re-start its enrichment capabilities and has earmarked billions of dollars.

Centrus is ahead in this industry, it has American-made technology being operated by an American company. It is the only company able to produce HALEU in the US and has significant capacity potential. Centrus benefits from an experienced workforce and existing facilities.

Centrus is a trusted supplier with a growing order book, its future enrichment facilities have already generated $900 million of contingent orders and its current LEU business has a billion-dollar order book for delivery before 2030.

Centrus has a solid balance sheet and a good cash position.

I am rating Centrus a Strong Buy and will add it to my portfolio. My Strong Buy portfolio is my vehicle for generating wealth investing within a 2-year time frame. I will update you in the comments section as the trade progresses and report on the performance of my portfolio.

Stock Price Forecast:

Here are the target price forecasts for the next 12 months from analysts.

Based on 2 Wall Street analysts offering 12 month price targets for Centrus Energy in the last 3 months. The average price target is $69.00 with a high forecast of $76.00 and a low forecast of $62.00. The average price target represents a -30.01% change from the last price of $98.59.

Resource:

https://seekingalpha.com/article/4721515-centrus-energy-securing-americas-energy-future-in-the-new-dawn-of-nuclear

What are your thoughts on $Centrus(LEU)$ ?