Markets buoyed by talk of trade progress, but economic numbers disappoint, notes Bill Baruch....
BWX Technologies: Nuclear Potential
09/04/2018 5:00 am EST
The firm is probably not on your buy list since, until recently, there has been a moratorium on the construction of nuclear plants in North America. Because of that, it would be easy to overlook the fact that there are existing reactors that require updating and servicing.
Today there are about 450 nuclear power reactors operating in 30 countries, producing approximately 11% of the world's electricity. About 50 new reactors are currently in construction in 13 countries, including three in the U.S. So, the nuclear industry globally is not dead, even though it looks that way.
In Canada, the operators of the Bruce and Darlington Candu reactors have awarded contracts to upgrade them at a cost of C$642 million. Additional maintenance contracts bring that total to C$859 million so far in 2018. This type of recurring revenue in the engineering and field service businesses will go on for years, even if no new reactors are built in Canada.
All these contracts have been awarded to BWX Technologies, which recently acquired the business from General Electric (GE), which has been selling assets in an effort to reduce debt.
The company also acquired Nordion, which specializes the medical isotope business. Nordion has two Canadian facilities, in Kanata and Vancouver. It's a small deal but does move BWX into medical technology, which is obviously a rapidly growing area.
As a start, BWX recently announced that it has signed an agreement with Bruce Power that will enable the two companies to collaborate on the development and supply of medical isotopes.
The company was also awarded a C$168 million, five-year contract extension to manufacture fuel for Ontario Power Generation's (OPG) Darlington and Pickering nuclear generating stations. However, the Canadian operations are a small part of the company's operations. In the U.S., BWX has significant operations with $1.7 billion in sales (figures in U.S. currency) and 6,000 employees worldwide.
Additionally, there are a number of other nuclear applications in the medical and defense businesses that continue to expand opportunities for the company in those sectors. BWX is the sole manufacturer of submarine and aircraft carrier nuclear reactors. It has also captured 50% of missile tube production.
The current administration is totally committed to expanding the production of both carriers and submarines, which provides the company with long-term revenue stability. Even if the administration were to change the lead-time for these ships, that takes many years and you can be sure the projects won't be stopped mid construction.
Additionally, the company provides services to a number of D&D reactors (deactivation and decommissioning) in the U.S. along with cleanup and other field operations. It was recently awarded an $18.8 million NASA contract to study nuclear propulsion for space development.
The company has guided to revenues of $1.75 -$1.85 billion for 2018, with earnings per share of $2.45-$2.55. It is on track to hit those numbers with revenue growing 7% and EBITDA growing by 13% in the latest quarter.
The market is overdue for a correction but this company will be less affected than most since it has few competitors, a solid balance sheet, and $3.6 billion backlog.
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