Nuclear power may have taken a back seat in the last decade, but it's roaring back to the forefront thanks to the electrification of our grid and advances in artificial intelligence (AI).
According to the Bank of America Institute, U.S. electricity demand is projected to skyrocket at an impressive 2.5% compounded annually -- 5 times faster than the previous decade. Nuclear power is the largest source of low-carbon, clean energy, accounting for 18% of U.S. electricity today. With interest in nuclear energy surging, now may be the time to get in.
Centrus Energy (LEU +0.50%) is one nuclear company that could play a pivotal role. As the U.S. aims to reduce reliance on foreign energy, Centrus could become a vital player in the domestic nuclear fuel supply chain.
The stock has been volatile, trading as low as $50 and as high as $464 this year. Today, the stock is down 47% from its 52-week high, and shares are priced below $270. Does that make Centrus a buy today? Let's dive into the investment opportunity ahead to find out.
NYSE: LEU
Key Data Points
Centrus plays a key role in the nuclear supply chain
Centrus Energy provides nuclear fuel components, along with enrichment and technical services, to customers. The bulk of its revenue comes from its low-enriched uranium (LEU) segment. Here, it sells LEU, the fissile component of most nuclear fuel, to utilities that operate commercial nuclear power plants. To fulfill its delivery commitments to customers, it sources uranium and related products from a range of global suppliers.
In its technical solutions segment, Centrus provides advanced uranium enrichment for the nuclear industry and the U.S. government, along with advanced manufacturing, engineering, and other technical services to both government and private-sector customers. A significant portion of this segment's revenue is derived from the high-assay, low-enriched uranium (HALEU) operation contract with the Department of Energy.
At the moment, there are no commercially active HALEU reactors. The only HALEU reactors are test reactors, and these may not be operational until the late 2020s or early 2030s. A few companies are developing HALEU or HALEU-capable reactor designs, including TerraPower, Kairos Power, Westinghouse Electric, and Oklo.
Domestic nuclear fuel production is a huge opportunity
Centrus Energy is uniquely positioned as the only producer of HALEU for both commercial and national security applications that is licensed by the Nuclear Regulatory Commission (NRC). It's also the only company capable of producing HALEU outside of Russia, which is vital as HALEU will power the next generation of nuclear reactors.
Centrus is also the only U.S. company with a proven enrichment technology capable of meeting both commercial and national security needs. Stifel analysts have noted Centrus is "uniquely positioned" to play a significant role in rebuilding the nuclear enrichment supply chain.
Right now, Centrus relies on outside sources to deliver LEU. It has two commercial agreements to sell LEU, one of which is with TEXEX, a Russian entity, which it will need to diversify away from in the coming years. The company currently has a waiver from the Department of Energy that allows it to import LEU for all of its committed deliveries to U.S. customers in 2026 and 2027. However, the Russian LEU import ban is expected to be fully phased in by 2028 -- creating an urgent need to replace about 25% of enriched uranium currently imported from Russia.
Image source: Getty Images.
Centrus aims to produce LEU and HALEU in-house using its advanced centrifuge technology. To do this, it will need to expand the uranium enrichment capacity at its Piketon, Ohio, plant. This hinges on Department of Energy funding, private investment, and long-term customer commitments. If Centrus succeeds, it could transition from reseller to a producer of key nuclear fuels.
Is Centrus Energy stock a buy?
Centrus is well positioned to become a key player in the nuclear fuel supply chain. The stock isn't cheap by any means, priced at 48.6 times this year's projected earnings per share (EPS). However, with the recent decline in the stock price, it's well off its high valuation of 88 times this year's EPS. Its growth trajectory is heavily dependent on becoming a primary domestic supplier of nuclear fuel. The timing of the growth is uncertain, as it's tied to the build-out of its Piketon plant, which will require significant upfront investment.
Centrus' valuation remains on the high end, but reflects investor optimism about its potential role in the future of nuclear energy. The stock is pricey, which makes it vulnerable to large price swings, so it's not ideal for conservative investors with a short time frame.
That said, I believe nuclear is the future, and Centrus Energy could be an important player, which is why I think this dip is a good opportunity for investors to build a small position in the nuclear company.
