3 Reasons Wall Street Analysts Remain Bullish on NuScale Power Stock

On paper, NuScale Power (NYSE: SMR) has a bright future. The nuclear power stock is the only company currently approved by regulators to build a small modular reactor (SMR) in the U.S. SMRs are essentially miniature nuclear power plants, a form of nuclear energy generation that is receiving renewed interest from AI companies. The AI industry needs more electricity quickly. With much shorter construction times and lower upfront costs, SMRs have a distinct advantage over conventionally sized nuclear power plants.

A quick look at NuScale's stock performance during the past year, however, paints a different story. The shares are down more than 30% year to date and have plunged more than 70% during the past 12 months.

Many Wall Street analysts haven't given up hope. In fact, some are incredibly bullish on the stock, predicting more than 100% gains during the next 12 months.

What is keeping Wall Street so bullish despite the share price tumble? There are three primary reasons for continued optimism.

Here's why Wall Street still loves NuScale Power stock

On Aug. 16, Ryan Pfingst, an analyst at B. Riley Financial, lowered his price target on NuScale stock from $19 to $15 while maintaining his buy rating. Pfingst is particularly excited about a potential power purchase agreement (PPA) with the Tennessee Valley Authority (TVA), NuScale's biggest customer.

Thus far, the company's deal with TVA is largely a handshake agreement. Minimal financial obligations have been made. A PPA, however, would commit TVA to buying power from the future SMR facility at a predetermined rate for years to come. In short, it would ensure future revenue for NuScale, allowing it to begin construction.

NuScale has faced customer cancellations in the past. The company's collapsing stock price partially reflects this risk. If a PPA is signed, however, that risk point diminishes significantly, lifting a major overhang on NuScale's valuation.

Image source: Getty Images.

The TVA deal alone has the potential to make or break NuScale's stock price. But it's not the only project in NuScale's pipeline. Pfingst is also optimistic about the company's project in Romania, which recently advanced to the next stage of government review.

NuScale's deal with RoPower Nuclear aims to build Europe's first SMR facility. It has been delayed several times, and construction is not expected to be completed until the early 2030s. Investors should view this more as a long-term option than a near-term catalyst. But there is reason for optimism. Earlier this year, Romanian officials cleared the project for formal investment. The next step is to determine exactly where those investment dollars will come from.

"Over the next six months, the project will enter a phase of financial structuring and partnership consolidation, during which financing mechanisms will be defined and discussions with potential investors for the execution phase will be advanced," an official stated. With that six-month period recently completed, a positive catalyst for the project could be revealed at any time.

This brings us to the third reason Pfingst remains bullish on NuScale stock: He believes the company has enough financial resources to survive until positive catalysts regarding these two SMR projects are announced. NuScale has essentially no debt, and it's sitting on $1.9 billion in cash. Much of that cash position was raised through stock sales, diluting investors. And more share dilution may be on the way.

The important factor, however, is that NuScale likely has enough capital to sustain itself until positive catalysts arrive. In recent quarters, it has posted operating losses of roughly $60 million, though cash-flow figures varied more widely due to obligatory payments made to project partners. But the next few months could see NuScale benefit from some of the longtime catalysts that investors have been waiting for. NuScale's chief financial officer recently suggested a PPA for its TVA project could be signed by the end of 2026. And although the RoPower deal does not have a formal deadline, previous comments from government officials suggest positive news on that front could also be revealed before year-end.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.