Nuclear Firms Power Up - Barron's

President-elect Barack Obama has created a heady agenda for advancing clean energy and nuclear power giants are set to gain. Barron's says investors should keep an eye on key players like Exelon (EXC) and Entergy (ETR).

As the biggest producers of energy that doesn't emit any greenhouse gases, nuclear plants are entering a 'renaissance,' set to rise handsomely from Obama's 10-year $150B clean energy plan. Companies are applying to build new plants, which could take year, but in the meantime, existing nuclear plants look pretty good. Their stocks are cheap and they boast plenty of competitive advantages, including lower costs than coal-fired rivals.

With a market cap of $15.7B, Entergy trades at 11 times 2009 earnings of $7.50/share. The company's operating earnings rose 22% in 2007 to $5.76/share, and is expected to earn $6.60/share in 2008. With shares down 34% in the past 12 months, there's plenty of room for a rebound. Hilliard Lyons has a 12-month price target of $100 vs. Entergy's recent $80.12.

Exelon, likewise, is down 36% in the last 12 months but has an eye on growth. It made an all-stock offer for around $6B for NRG Energy (NRG), the first company to file for a permit in the new round of construction proposals. The company trades for about 13 times next year's earnings and yields a healthy 3.8%. Macquarie rates the firm as Outperform with a $82 price target vs. the company's recent price of $54.17.

Another company to keep an eye on is Southern Co. (SO), an integrated utility with nuclear power whose shares are down just 12% in the last 12 months. Grant Taber, an analyst at Westwood Holdings Group, is positive on the stock and likes its 'very low relative economic sensitivity.' With a yield of almost 5%, Taber calls Southern a 'bond proxy' with a relatively high return on equity and good relationships with regulators.

Addressing concerns about nuclear safety, much progress has been made since Three Mile Island in 1979. "It's safer to work in a nuclear plant than it is in real estate," says scientist Patrick Moore, citing studies from the U.S. Bureau of Labor Statistics and Columbia University.

Comments

[Rod Adams:]

Rachel: In addition to the nuclear generating utilities, it might also be worthwhile to do some research on companies that will be building the new nuclear power plants. Some companies whose prospects look good in this area are Shaw Group, Toshiba, Bechtel, Curtis Wright (nuclear grade valves) and McDermott (whose Babcock & Wilcox subsidiary has a strong position in nuclear plant component manufacturing).

It is a fascinating opportunity, but one that must be approached with a thirst for details.

Rod Adams
Publisher, Atomic Insights

Jan 11 07:07 AM

[ArtfulDodger:]

Good article Ms. Granby. Thank you.

Nice comment Rod Adams.

Jan 11 08:25 AM

[billp37:]

Estimated lead time for nuclear electric energy to come on-line according to PNM is 11 years. See FOIL 10.

home.comcast.net/~bpayne37/pnmelectric...

A problem?

The study, "Lights Out In 2009?" warns that the U.S. "faces potentially crippling electricity brownouts and blackouts beginning in the summer of 2009, which may cost tens of billions of dollars and threaten lives." ...

www.utilityproducts.co...

We will see.

Jan 11 09:06 AM

[Clearlead:]

nuclear, love it, but agree with billp37 on the lead times...I also like Rod's suggestions, however, more short term there's a play to be had in the area of "efficiency" whether demand response or smart grid.

Jan 11 09:39 AM

[Ferdinand E...:]

Interesting. Thirty years ago the Japanese could go from ground break to grid power in 4 years, according the Donald Carr - certainly one of the most brilliant energy observers of all time. In theory the Swedes could do this also, but that was before their moronic politicians decided that they shouldn't, and in any case it's considered bad form to talk about it. It's more comfortable to believe a collection of lies.

I like to put it this way: if necessary the Japanese could have a plant with a 'life' of 70 years in under four years, which means that in terms of the economics that I teach, they can produce some of the most inexpensive power in the world.

Jan 11 10:03 AM

[fran:]

you might add CBI, epc for 50% of current inventory of containment vessels and has same contract work from SHAW/WESTINGHOUSE for first two Georgia pwr units.


On Jan 11 07:07 AM Rod Adams wrote:

> Rachel: In addition to the nuclear generating utilities, it might
> also be worthwhile to do some research on companies that will be
> building the new nuclear power plants. Some companies whose prospects
> look good in this area are Shaw Group, Toshiba, Bechtel, Curtis Wright
> (nuclear grade valves) and McDermott (whose Babcock & Wilcox
> subsidiary has a strong position in nuclear plant component manufacturing).
>
>
> It is a fascinating opportunity, but one that must be approached
> with a thirst for details.
>
> Rod Adams
> Publisher, Atomic Insights
>

Jan 11 10:39 AM

[Crude Oil T...:]

This could be a good trade, but I think it's a little early. We know that Mr. Obama is moving to the center politically but looking at his cabinet appointments keeps the jury out on the environmental direction he will take.

Jan 11 11:46 PM

[starboard:]

I agree with Rod Adams, there are some associated stocks that should perform well when the nuclear renaissance gets recognized. Shaw Group is the obvious benefactor since it owns 20% of Westinghouse. Curtis-Wright is a great company that not only supplies nuclear grade valves but they also are the sole supplier to Westinghouse for Reactor Coolant Pumps as well as Control Rod Drive Systems. For every Westinghouse committment by a power company Shaw ends up with EPC contracts. Shaw has also announced that they will be building a huge plant in Lake Charles to build modularized nuclear systems to support the Westinghouse backlog. Flowserve will end up supplying large quantities of valves and non-primary system pumps (they are supplying critical reactor system valves for the Areva project in Finland).

Jan 12 09:35 PM

[Quigley:]

With utilities, watch out for those who have diversified in less lucrative sectors (e.g., real estate). On the EPC side, the major players are Westinghouse, URS Washington, Shaw, GE-Hitachir, Fluor, CH2M Hill, Bechtel,l B&W, and AREVA. Don't forget about steel either! There won't be enough of it given the international demand and the infrastructure needs associated with the "stimulus" package.....

Jan 16 11:32 AM