The Core of the Thesis I believe Centrus Energy Corp (LEU) offers the greatest upside in the Nuclear sector. Here’s why:
– LEU is the only American company that enriches uranium today.
– It currently trades at 2.2x enterprise value / sales. It reported 189m of revenues last quarter.
Lets compare that valuation to the uranium miners. Of the one’s producing revenue, they average ~97x. If we reduce the comparison to the lowest, it is 10x. If you want to compare to the largest and most well-known, it is CCJ at 11x. Suffice to say, nuclear-related companies trade at very high multiples.
Maybe they should be trading more in like with utilities with nuclear exposure. Well even here, the average is 5x.
The basic metrics for LEU and comparisons are below.
Potential for Outsized Returns
If LEU simply re-rates to ~5x – which to me, would still be very conservatively valued – it would be ~123 / share. January 80 strikes currently trade at ~1.7. If that re-rate happened before then, the return would be ~25x. I.e. (123 – 80) / 1.7.
Those kind of potential returns are exceptionally rare, even among contracts.
I am not aware of any other nuclear related trades that could offer such an enormous return. Never mind such an enormous return on a relatively conservative premise, i.e. re-rating from ~2.2 ev / sales to 5x.
So now that we have the most important elements out of the way, here is why I think Nuclear will be super hot, and more details on LEU specifically.
US Nuclear Bull Thesis
AI is viewed by the Mag7-Military-Inudustial complex as being central to US political and economic hegemony. As such, they have pulled out all stops in terms expenditures. And the feds have operated at breakneck spread to buttress US advantage in AI via regulation. I.e. they have acted swiftly and aggressively to being as much of the supply chain within US national borders or control.
As AI has progressed, anything that has been revealed to be a bottleneck – whether semis, or data centers with ready powers supplies, or electrical companies, etc. has re-rated, often doubling, tripling, or more in breakneck speed.
The latest revealed bottleneck is energy. And apparently nuclear power is the only source that can viably satiate the projected energy needs. Hence the MSFT big for three mile island. I view this as the opening salvo. The other big AI players will need to secure nuclear sites in short order – perhaps they will be bidding against one another – given the limited number of existing nuclear sites. The news cycle for Nuclear is primed to get wild, and fast.
LEUs role
The US’s largest vulnerability with respect to nuclear is that much of the supply chain is controlled by Russia. Given that (a) we are engaged with a proxy war with Russia, and (b) rapidly expanding nuclear power is now a major national security issue – I expect the Feds to act rapidly and decisively to remedy this issue.
The most obvious step to remedy this would be to provide substantial funding to support LEU’s expansion of enrichment facilities within the US. When it comes to acting decisively and rapidly – the Feds almost always bet big on the most established players with the longest history. That is unambiguously LEU.
Beyond the feds taking action, I think the Mag7 / utilities are going to be placing massive orders to secure future enriched uranium, as it becomes evident the number of active nuclear sites in the US is set to expand. LEU should be a recipient of much of these orders and see their backlog increase substantially. In sum, I think LEU is primed for a series of very positive press releases and generally a very bullish news cycle with respect to nuclear energy.
Further Info
There is plenty of other reasons to be bullish LEU, e.g. their strong relationships with SMR developers and the work they are doing with HALEU. However, I will end it here. If there is interest, I’ll do a follow-up post. In the meantime if you want to dive further
I suggest this video or a presentation the CEO just gave in DC.
Their investor presentation is here