USEC Inc.: Uranium Play With A Bright Future Ahead

Over the last year, USEC Inc. (USU) has fallen from a stock price of over $22 to just over $6. The stock has recently moved upward after falling as low as $3.15, but has since recovered somewhat. Since my call on fool.com, the stock is up 16.82%. Last year USU moved up quickly and was grossly overvalued, but the sell off was extreme and I believe this stock has higher to go in the upcoming months.

 USU has had many critics, and many reasons not to support nuclear energy. It seems inevitable that current energy pricing will not increase the need for more power through electricity. The biggest problem with current plans is with hybrid vehicle production. In the very near future, we will have hybrid vehicles that will be plugged in at home for the purpose of taking the pressure off oil inventories. This move of using electricity in conjunction with combustable engines seems to be part of the equation. Other methods are starting, such as the use of natural gas to propel government and other vehicles, as with Clean Energy Fuels Corp.(CLNE). There is also talk of a development stage use of hydrogen, but it is far enough off that we need something that will work in the interim.

When looking at USU, it is better to focus on the positives with respect to the company. Worries that USU would not be able to come up with financing for its new plant have recently been stifled by anticipation it will have a DOE guaranteed loan. This is by no means for sure, but prospects are good.

USU is the only uranium enrichment facility in the United States. It provides half the nuclear fuel to the US and a third to the rest of the world. It acts as the executive agent for the program to convert the US and Russian nuclear warheads into fuel. As of the end of last year, its order backlog was $6.5 billion. If we are to look long term at this company, its American centrifuge will dramatically cut costs, as its margins have been pressured by the increased cost of electricity.

Nuclear energy has many advantages. Its zero emissions and reliability are very important, as it can be used as base as it is not reliant on the weather such as wind or solar. Electricity production costs by nuclear are cheaper than any of the fossil fuels. It is currently, the third largest source of electricity in the United States and provides approximately 20%.

The US has 104 reactors of the current 435 worldwide. USU's enriched uranium is used in three continents and in 150 reactors. Its revenues have increased every year since 2005. Net income was down in 2007 from 2006 based on costs. Revenue for last year was 68% United States, 18% Asia and Europe, and 14% Japan. 81% was from enrichment, 10% US Government contracts and 9% natural uranium.

Current valuation seems inexpensive as its PE ratio is only 10 times earnings. The company's forward PE is even better at 6.69. Earnings for the current year are already valued correctly in the stock price and next year is estimated to increase by 190%. I believe this stock is a good buy at these levels.

Comments

[Paul Killinger:]

Thanks for the update. I've been following USU for some time.

May I ask, then, how do you evaluate the company's future prospects? Are they dependent on the Congress approving the licensing of more nuclear reactors in the U.S.? Are there significant numbers of new reactors being built elsewhere in the world? If so, can USU get their business?

Thanks for your help.

2008 Jun 12 09:28 AM

[The Jackal:]

I've heard that the Department of Energy is very close to announcing that they will award USU a loan guarantee. Once the announcement is made USU should have a nice rally.

2008 Jun 12 11:39 AM

[satch63:]

How about their ccc credit rating -they are a essentially bankrupt company that shouuld be a winner but have no skills.

2008 Jun 12 02:16 PM

[CLH:]

USU has had some serious problems but its future seems assured. The timing is difficult.

2008 Jun 12 02:34 PM

[BoneYard:]

USU has dropped the ball every step of the way. First burned by the russians on megatons to megawatts, then they scrap their investment in AVLIS, the gaseous diffusion method of enrichment is 2nd rate, by the time they get centerfuge technology done beyond the demonstration phase, someone else will be in the space. Also have to wonder how they service the debt they will incur.

2008 Jun 13 08:58 AM

[whidbey:]

Until the Congress bites the bullet and goes nuclear all US uranium stocks will languish waiting for more than an export market. There is no sign yet that congress will do anything but talk. All the fuel stocks have problems, even coal, if the Dems take Congress by storm. Just wait, it is too soon to buy yet.

2008 Jun 15 03:54 PM

[legmaker:]

Paulk8756, Thank you for your question. If you look at USU they use to be part of the DOE until they were spun off as private. They have ties to the Government that will likely make sure they are viable with respect to this technology as even if the US does not build a bunch of nuclear reactors, the world is and they want to provide. The current energy bill almost looked as though they were setting the loan for USU if you look at the numbers and how it was worded. I do believe the company is guaranteed success going forward and look for the stock to return to levels of $10 to $14 this year on valuation and support from the DOE.

2008 Jun 17 10:21 AM

[Wez:]

More competition for USU?

www.world-nuclear-news...

2008 Jun 20 12:58 PM

[fireball:]

i commented on your dnn article. have you ever heard of silex? it appears ready to fill the gap usu is causing. i do own shares of silxf. it has been wild but since ccj joined ge in funding the new facility it appears to be smoothing out.

2008 Jul 02 04:35 PM

[legmaker:]

I saw CCJ's new venture, looks very interesting. I spend much time looking over CCJ as I think their company looks good going forward, but this info makes them even look better.

2008 Jul 02 05:10 PM

[BHMTom:]

China is looking to build 20 plants and the Southern Company is a big part of that. Its good for neuclear. Lets all sit back and let the bedwetting green peace types have thier way for another 10 years while China becomes the poster child for rational thinking. They will always be behind the US as an economic power such as they are now and were back in the 1900s. We will learn from them.
Neuclear is comming to the US. Obama is NOT a friend of Neuclear power due to his voting base of ignorant supporters. I think the vast majority of Americans want this energy source.
I like this stock as well as ccj.

Jun 28 02:59 PM