Why USEC Melted Down in 2011

As 2011 comes to a close, it's a great time to look back at what happened to the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at USEC (NYSE: USU  ) . The uranium supplier started the year with apparent strong demand for its nuclear fuel, but then the Japanese earthquake and tsunami created a huge backlash against nuclear power, potentially destroying the business model for uranium producers. Below, I'll take a closer look at the events that moved USEC's shares this year.

Stats on USEC

Year-to-Date Stock Return (81.1%)
Market Cap $139 million
Total Revenue $1.88 billion
Net Loss, Trailing 12 Months ($35.7 million)
1-Year Revenue Growth 2.1%
Cash / Debt $118 million / $615 million
CAPS Rating ****

Source: S&P Capital IQ.

Why did USEC crash this year?
USEC sells uranium to nuclear power plants both in the U.S. and around the world. Until this year, that seemed to be a huge growth industry, as carbon-emission controls gave countries big incentives to encourage nuclear power over fossil-fuel based generation. Some even termed it the "nuclear renaissance."

But all that came to an abrupt stop after the Fukushima Daiichi disaster in Japan back in March. Germany announced it would end its nuclear power program, and nations around the world paused to once again consider the devastation that reactor failures could cause. When NRG Energy (NYSE: NRG  ) decided to write off a nearly half-billion dollar loss on its South Texas Nuclear Development Project, it confirmed the bad news for the industry.

Of course, it's not just uranium producers like USEC and Cameco (NYSE: CCJ  ) that could suffer from a nuclear slowdown. Big reactor builders like General Electric (NYSE: GE  ) and Siemens (NYSE: SI  ) also have a stake, as do nuclear-focused utilities like Exelon (NYSE: EXC  ) . But while those bigger companies have alternatives -- both GE and Siemens, for instance, are heavily into alternative energy production -- uranium miners could disappear entirely if nuclear power ends abruptly.

Right now, investors seem to think that's a possibility. If anything other than the worst-case scenario happens, though, USEC could soar from its beaten-down levels.

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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. Motley Fool newsletter services have recommended buying shares of Cameco and Exelon, as well as writing a covered strangle position on Exelon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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  • Report this Comment On December 22, 2011, at 4:08 PM, Piketonian wrote:

    While USEC is certainly in precipitous decline, that decline started in January, two months before the Fukushima catastrophe. The real reasons behind the decline were: 1) USEC had led investors to believe that a federal loan guarantee would be forthcoming in October, 2010, and by January it was clear that was not the case; 2) USEC needed $1 billion for its new plant in addition to a $2 billion loan guarantee and it erroneously suggested that a Japanese bank would supply the additional money, which never was the case, and certainly not after March; 3) USEC experienced a series of centrifuge crashes beginning in January and culminating in June, calling its technology into question; 4) it became increasingly clear that the proposed new centrifuge plant is never happening, leaving USEC with no way to repay existing debts and retain nuclear fuel customers.

    There's actually not a way for USEC to recover from that -- if the demand for nuclear fuel picks up, that demand will be satisfied by lower-priced competitors including URENCO, AREVA, TENEX, and GE-Hitachi.

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