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Berko: Investment in nuclear power smart

By Malcolm Berko

Published: September 8, 2018, 6:03am

Dear Mr. Berko: We’ve had 250 shares of BWX Technologies in our account since early 2016. We bought them at $29. The stockbroker we trust, who built us a good portfolio over 11 years, disliked his firm and moved to another company. I didn’t move my account, and it was given to a nice 30ish broker. This new guy wants me to sell BWXT. I have a good profit. What do you think?

— TL, Fort Lauderdale, Fla.

Dear TL: I think you ought to kiss this nice pubescent broker goodbye and join your previous broker. You don’t need another learning experience, which could destroy the good harmony of your account.

BWX Technologies (BWXT-$61) is a nuclear power generation company that was a 2015 spinoff from Babcock & Wilcox. It has three reporting divisions:

1. BWXT Nuclear Operations Group builds nuclear reactors that are the power source for all 14 of the U.S. Navy’s nuclear submarines and all 10 U.S. aircraft carriers. Meanwhile, Congress has mandated that the Navy consider nuclear power for its cruisers, destroyers and amphibious assault ships. And my BWXT source tells me that owners of some of the huge cruise ships and ginormous oil tankers are considering nuclear power generation. There could be significant operational savings because the operating costs of nuclear reactors are much lower than those of nearly all fuel competitors. However, the cost of building a very large crude carrier (1,100 feet long with 250,000 deadweight tonnage) with a nuclear reactor is about $255 million, whereas the cost of building a diesel-powered VLCC with 250,000 deadweight tonnage is about $125 million.

2. BWXT Technical Services Group provides environmental and disposal services to the U.S. government and public utilities. Nuclear subs, aircraft carriers and utilities have high levels of radioactive waste. The nuclear reactor components are cut out, carefully sealed and taken to approved disposal sites. Until 1973, the Navy discharged all of its liquid radioactive waste in the ocean — at least 12 miles from shore. BWXT’s other major customers are names such as Florida Power & Light, Duke Energy, Southern, Dominion Energy, American Electric Power and PPL.

3. BWXT Nuclear Energy designs and builds steam generators plus various components and services for utilities that have nuclear plants. There are 99 nuclear power reactors (plus two under construction) in 30 states, operated by 30 utilities. And the U.S. is the world’s largest producer of nuclear power, producing 810 billion kilowatt-hours, which is 21 percent of the total U.S. electrical output.

And there’s a powerful amount of future business designing, building and servicing nuclear plants on Navy ships. According to an old Navy source, “there’s more nuclear-powered ships a-comin’ than you can shake a wave at.” BWXT is certainly among the top technology companies servicing a private industry in which there’s significant potential growth over the coming dozen years. BWXT has the skills and manpower to design, license, produce and deliver nuclear steam generators, pressure vessels, reactor components and containers for the storage of nuclear waste.

This fascinating company has been public for a tad over three years. BWXT’s first year as a public company saw $1.4 billion in revenues and earnings of $1.31 a share. In 2016, revenues were up to $1.5 billion, and earnings were $1.76 a share. Last year, revenues were $1.7 billion, and earnings were $2.01 a share. Headquartered in Lynchburg, Va., 6,200 employees should put $1.8 billion on the books this year, and with continually improving net profit margins, share earnings should top $2.50. A company representative told me that BWXT’s revenues should reach $2 billion next year, and share earnings could come in at $2.90. And BWXT’s research and development division is generating new ideas for safer and less costly disposal of radioactive waste. The company should capitalize on this over the coming years.

Analysts believe that by 2022, revenues will top $2.3 billion, the company will post earnings of $4.10 a share and the dividend, which was 12 cents in 2015, will be $1.10. So, the consensus on Wall Street places BWXT’s shares near the $120 level in the coming four years. T. Rowe Price, Vanguard, BlackRock, American Funds and Wells Fargo must agree, as they are significant shareholders.

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