Why BWX Technologies Stock Popped Today
Key Points
BWX Technologies has inked a partnership deal with Britain's Rolls-Royce.
BWX will supply components for Rolls-Royce's new small modular nuclear reactors.
Rolls has extensive contracts for SMR construction work in the Czech Republic.
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Little-known nuclear power components manufacturer BWX Technologies (NYSE: BWXT) is having a moment. Earlier this week we learned Canada will use the company's BWRX-300 small nuclear reactor for its Darlington New Nuclear Project. Today we learned BWX is expanding relationships in the United Kingdom as well.
And BWX Technologies stock is now up 2% through 1:30 p.m. ET.
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Details, please
As BWX just announced, it has signed a memorandum of understanding with Britain's Rolls-Royce to support collaboration on the Rolls-Royce SMR -- said to be a pressurized water reactor capable of producing 470 MWe. BWX will be designing nuclear steam generators for the company's reactors.
Contracts for the supply of "multiple reactor units" are envisioned over time, as Rolls-Royce performs on contracts to construct 3 gigawatts of new nuclear power in the Czech Republic, for example.
Is BWX Technologies stock a buy?
No value was stated for the BWX contract with Rolls-Royce, however, nor any price stated for the components BWX will be supplying -- making it hard to say how big of a revenue boost this will provide BWX, or whether the contract would be profitable.
What we do know is that BWX is a $17 billion company earning about $295 million annually, and generating about $360 million in annual free cash flow (FCF). That puts the stock's valuation at roughly 57 times trailing earnings, and an only slightly less nosebleed 47 times FCF.
For a stock pegged for only 13% annualized earnings growth over the next five years, according to Wall Street analysts, these are expensive valuations. As optimistic as I am about the potential for nuclear power, I won't pay just any price to invest in it. BWX stock costs too much, and I'm afraid it's a sell for me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BWX Technologies. The Motley Fool recommends Rolls-Royce Plc. The Motley Fool has a disclosure policy.
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