Recently, a small, mostly unknown private player in the nuclear power arena was unveiled to a select group of equity analysts. That company, NuScale Power, is at the forefront of a major technological breakthrough that could change the way the world generates nuclear power.
Moreover, the firm is probably the only viable investment choice for investors interested in this tech. Best of all, investors can invest in the company through a unique arrangement that mitigates risk. This is a major opportunity for long-term investors.
Let’s start at the beginning. NuScale Power makes small modular reactors (SMRs) which are a type of nuclear reactor which is built in a factory and designed to be safer and more economical for use in power applications. BWXT was involved in this business, but has cut back and seems to have refocused, ever since its spin-off earlier this year. Related: Is George Soros Betting on the Long-Term Future of Coal?
NuScale’s technology will take a while to catch on – the DOE doesn’t expect a commercially viable product until next decade. But when it does, it could be a very big deal in the industry. One of the best ways to play NuScale as a long-term opportunity is through Fluor (FLR). Fluor bought into the company at just the right time providing a critical cash infusion and taking a majority ownership stake in NuScale.
That investment in NuScale is exactly what could help to power Fluor forward and beyond the current petroleum woes. NuScale has a joint investment deal with Fluor and the DOE wherein Fluor has provided cash partially matched by the DOE to help advance NuScale’s technology. That should enable NuScale to produce a 600MW plant using its 50MW light water reactors for roughly $2.9 billion. If successfully demonstrated, NuScale’s tech could become highly attractive to the utility industry. Over time the result should be a roughly $400 billion target addressable market opportunity. Related: Are “Palm Trees” The Next Step In Solar Energy’s Evolution?
NuScale’s reactor cores have only 5 percent of the material contained in a traditional core. This makes the units much safer and should allow the reactors to be made in a factory and shipped by rail or even truck. This could be a huge opportunity for FLR. That stock only carries a market cap of around $6.5 billion, so NuScale could definitely move the needle long-term.
NuScale’s event was a big deal that garnered a lot of attention. This kind of visibility could also serve as a long-term catalyst for Fluor. Fluor has a major opportunity to build a business with NuScale that could actually end up being as large as or larger than the parent company – comparable to what EMC did with VMW. Related: Why Did Oil Prices Just Jump By 27 Percent In 3 Days?
Admittedly, all of this is still five to perhaps even ten years in the future – an eon in the context of many quarterly-focused investors. But that doesn’t mean the opportunity isn’t worth paying attention to. NuScale is continuing to make progress on its technology, and it should be submitting finalized design plans for its reactors to the DOE next year. Combined with better PR and analysts briefings by NuScale and FLR, it is likely that investors will be able to take more notice and give FLR credit for this hidden asset.
Once that happens, investors should start to give Fluor a more appropriate multiple that reflects not only its current earnings, but also the long-term option value embedded in NuScale’s business. For beaten down Fluor stock, which is definitely trading in value territory at this stage, that would be a welcome development indeed.
By Michael McDonald of Oilprice.com
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