Why Centrus Stock Popped on Tuesday
Key Points
The Department of Energy announced a $4.2 billion loan for Vistra today.
Vistra produces nuclear power, and Centrus produces nuclear fuel.
There's no evidence Vistra buys its nuclear fuel from Centrus.
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The U.S. Department of Energy announced it will loan nuclear power company Vistra Corp (NYSE:VST) $4.2 billion to finance nuclear plant upgrades "across Vistra's nuclear fleet in Pennsylvania and Ohio," igniting a rally in nuclear power stocks Tuesday.
Shares of Vistra soared more than 11% through noon ET. Centrus Energy (NYSE:LEU) did even better, running up 11.3%.
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Vistra and Centrus
President Trump has announced an "American nuclear renaissance," and the loan to Vistra is part of this plan. The $4.2 billion will be used to preserve capacity and extend the service life of Vistra's plants, and to expand electricity production by more than 10% by adding 433 megawatts (MW) of new nuclear capacity.
Investors probably think that this good news for Vistra is good news for Centrus Energy, too. After all -- Vistra uses nuclear fuel; Centrus produces (or more commonly, buys and resells) nuclear fuel. It seems logical that more power generation at Vistra should translate directly into Vistra buying more nuclear fuel from Centrus.
And yet, according to data from S&P Global Market Intelligence, at least, there's no indication that Vistra is a customer of Centrus -- and no solid reason to believe that Vistra's expansion will in fact benefit Centrus stock.
What it means for Centrus stock
That's not to say othercompanies won't buy more fuel from Centrus, of course. If the DOE loan is the start of a string of similar loans expanding nuclear power production across the U.S., for example, this could very well happen.
It's just not a given.
And "given" that Centrus stock is currently free cash flow-negative, and costs 83.5 times earnings today, I'm not convinced it's a great idea to bid up Centrus shares even more, on news that might not relate to it at all.
Should you buy stock in Centrus Energy right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vistra. The Motley Fool has a disclosure policy.
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