USEC Inc.: Uranium Play With A Bright Future Ahead

| About: Centrus Energy (LEU)

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, 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.(NASDAQ: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.

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