America launches a new nuclear boom. These 5 stocks could benefit from billion-dollar investments
The US Department of Energy in June conditionally pledged loans of $17.5 billion for the purchase of long-lead components for up to ten AP1000 reactors from Westinghouse. Construction of all ten is to begin by 2030. The loans follow last year's government agreement with Westinghouse and its owners, under which new reactors worth at least $80 billion are to be built in the US. In September, a third piece was added: South Korea, according to documents submitted to parliament in Seoul, is negotiating eight reactors in the US for roughly $120 billion, of which six should be AP1000.
Key points
Curtiss-Wright supplied main coolant pumps to all AP1000 reactors started so far, at about $112 million per unit. Ten new US reactors would still add only about 6% to its annual revenue.
Flowserve's valves are worth up to $115 million per reactor, according to management, practically the same as Curtiss-Wright's pumps. Yet Flowserve's stock trades at about half the earnings multiple.
The US government, in the $80 billion reactor agreement, negotiated a right to 20% of Westinghouse's cash distributions above a $17.5 billion threshold. If no binding construction decision is made by January 2029, the right expires.
Centrus has orders worth $4.5 billion, but roughly $3 billion of that is conditional on the company building new enrichment capacity. Meanwhile, exceptions for Russian uranium imports end a year before its own production is due to start.
The last two US AP1000 reactors at Vogtle cost $36.8 billion instead of the planned $14 billion and entered service seven years late. The new plan nevertheless assumes construction of ten units will begin by 2030.
None of these steps yet means a signed construction. Loans are conditional, the Korean agreement is not closed, and only two AP1000 reactors are operating in America today, units 3 and 4 of the Vogtle plant in Georgia.
Money will nevertheless flow before anyone definitively orders a reactor. Loans fund pumps, pressure vessels and other heavy components before the final investment decisions of individual projects. Whoever sits at the start of the chain gets paid first.
The five companies in this overview cover different parts of the chain, and the same reactor means very different money relative to their size. For one it is a few percent of revenue, for another a stake in the company that designed the reactor and will supply it with fuel and services for decades.
Five special purpose vehicles, an $80 billion framework and a Korean reserve: what actually applies from the plan
The furthest along of the three announcements is the June loan. According to documents from one of Westinghouse's owners, it is to cover up to five sites with two reactors each. For each, a special purpose vehicle will be set up by Westinghouse and the specific utility that orders components and holds them on behalf of the future operator. Pressure vessels, steam generators and pumps will thus begin to be manufactured in series before the project gets the green light. According to the department, this could shorten construction by up to three years. The pledge, however, is conditional, and the money will flow only after final loan agreements are negotiated.
The $80 billion agreement is so far only a framework. The government committed to secure financing and accelerate permitting; according to a legal analysis by the office of K&L Gates, the money is to come partly from a Japanese investment pledge to the United States. No specific reactor has yet been ordered for that amount.
The Korean part is the newest and least complete. Seoul, according to information submitted to parliament, expects construction in three waves (two, four and two reactors) and has negotiated $20 billion of the total $120 billion as a reserve for cost overruns. The mix is still uncertain: Washington, according to Korean television SBS, wanted all eight AP1000 units, Seoul insists on at least two of its own APR1400.
Why five uranium miners are not enough
A new reactor needs its first fuel only just before startup, i.e., for units starting around 2030, many years after construction begins. Loan money, however, flows immediately, to component manufacturers. A uranium miner earns from the plan latest of all.
The five therefore cover five different places and times: a stake in the reactor designer tied to fuel and services, primary circuit pumps, valves and flow technology, heavy engineering manufacturing, and uranium enrichment. Component makers get paid during construction, the fuel chain only after startup, but then for the entire operating life.
The breadth of the chain is shown by Westinghouse's own figure: each two-unit AP1000 project, according to the company, creates or sustains 45,000 manufacturing and engineering jobs in 43 states. Of the five selected companies, only two have a deliverable for the AP1000 that can be quantified per reactor, and only one owns a stake in the designer itself.