Two firms are positive on USEC (USU) this morning:
- Jefferies notes the DoE has submitted its loan guarantee implementation plan to Congress for a 45 day review. The DoE aims to issue solicitations in late May or June for $2 billion in "front-end" nuclear facilities, $18.5 billion for nuclear power facilities, and $10 billion for renewable energy and energy efficiency and transmission projects.
Given the advanced stage of the American Centrifuge Project [ACP], the firm expects USEC to pass the DoE's technical review easily, particularly if the review focuses on "new or significantly improved technologies" that can help reduce greenhouse gases. Firm expects the Street to have more concern over the financial review, which focuses on the project's creditworthiness, construction costs and timeline, and legal/regulatory risk--particularly given the ongoing uncertainty over the ACP costs and USEC's ability to secure SWU prices that generate returns above its cost of capital.
Rising uranium and SWU prices and elevated energy prices provide an attractive backdrop for operational improvements at USEC, particularly given conservative Street expectations on competitor behavior and project execution.
Reiterates Buy and $11 target on USU.
- Goldman Sachs notes they are encouraged that under the plan, the first solicitations for loan guarantees would include $2 billion for advanced nuclear facilities for the "front end" of the nuclear fuel cycle. This directly applies to USEC's American Centrifuge Project and they see few if any other candidates. Separately, the GAO concluded that the DOE's stockpile of depleted uranium could be worth as much as $7.6 billion and recommended a sales strategy be completed "as soon as possible." Firm believes this could potentially lead to an enrichment contract with USEC, enabling USEC to capture some of the economics.
While American Centrifuge Project execution and risk remains their primary focus, GSCO sees two potential catalysts that provide valuation support at current levels.
- First, the path to a DOE loan guarantee is becoming increasingly clear. They believe USEC could be awarded a loan guarantee by the end of 2008 or early 2009.
- Second, re-stripping of DOE high assay tails could be a meaningful opportunity for USEC. They believe USEC is well suited to bid on any re-stripping contract which could create $1 billion of total value over four years.
Notablecalls: Guys, I have good feeling about this one. Why? Well, for several reasons:
- First this uranium play has been trashed over the past year or so. No catalysts, no nothing. And suddenly, kaboom - Dept. of Energy offers us one with GSCO calling USU pretty much the only beneficiary of the loan plan.
- Second, takeover rumors have started to circle around the uranium plays. We had two last week - CCJ & USU. Both worked very well, telling me the path of least resistance is up.
I believe this one may have 10-20% short-term upside. I am calling these two calls Actionable Trading Calls.