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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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One Long-Term Bet On The Future Of Nuclear Energy

One Long-Term Bet On The Future Of Nuclear Energy

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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  • Erica on September 07 2015 said:
    This modular reactor and the current reactors being built do nothing to solve the current problems nuclear energy presents. They still would create the same nuclear waste that would need to be isolated for thousands of years. It's ultimately unsustainable.
    Renewable energy sources and energy efficiency is where we need to invest.
  • David Hrivnak on September 07 2015 said:
    Nuclear can be a good compliment to renewables. Nuclear can provide a steady baseload which we need. The waste can be safely stored in Yucca mountain f9e many centuries.
  • John Robb on September 08 2015 said:
    Reclamation of Spent Nuclear Fuel Rods is a current technology that reclaims the 90% of energy that remains after 18 months of producing Electricity. There is a huge source of almost inexhaustible Nuclear Power in the stored Spent Fuel Stored at the Nuclear Power Plant Sites. Disband the Department of Energy and let the Nuclear Industry and States reclaim this very clean source of Electricity Production.
  • Rebel on September 15 2015 said:
    It's almost amusing that people still don't realize that those spent fuel rods are not a liability, but an ASSET.
    The real problem is the regulatory roadblocks preventing recovering the useable Uranium and Plutonium for fuel in another reactor, transmutating (burning) the long lived 'waste' in a Fast Neutron Reactor (turning waste into electricity), then you are left with some fission products whose half-lives are a couple hundred years (much easier to sequester and manage).
    Please don't think that a nuclear only option is being pushed here, just pointing out that most of the public and decision makers in D.C. continue to mislead the facts to further there own agendas. Between Fast Neutron Reactors, Molten Salt Reactors, and the ability to breed more fuel from plentiful Thorium, it should be criminal that we are not pursuing this avenue as a major method of getting off of fossil fuel dependency.
    If we don't need to import the oil, then we stop funding the radical whack-o's that just keep taking our money and further oppressing their people.
    Oh, and it would be swell if people quit perpetuating the myth that those spent fuel rods are a BAD thing that will cause us headaches and cost lots of money to DEAL with. LIARS!! Tell 'em I saw Elvis at 7-11 so they will have something else to perpetuate.
  • Leo on September 15 2015 said:
    @Rebel this Wiki article suggests that the economics of spent rod reprocessing are usually unfavourable, hence more attractive to dispose of and use 'fresh' product: https://en.m.wikipedia.org/wiki/Nuclear_reprocessing#Economics
    Unless you are alluding to other research or igniring the economic viability angle?

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