Image Source: Recent Quarter Earnings Analysis and Future OutlookBWX Technologies () recently reported better-than-expected third-quarter FY23 financial results. Revenue in the quarter increased by 13% Y/Y to $590 million (vs. the consensus estimate of $575.7 million), with double-digit growth in Government and Commercial operations. In Government Operations, revenue was up 13% Y/Y to $478 million, driven by higher naval nuclear component production and microreactor volume, partially offset by lower long lead material procurement. In Commercial Operations, revenue was up 10%, driven by increases in component manufacturing and field service activity in the commercial nuclear business, partially offset by lower fuel handling volume.Looking ahead to 2024, I believe the Government Operations segment should grow modestly due to the healthy demand for naval projects and contributions from non-naval programs, including new microreactor projects such as DRACO and the expanded special materials franchise. The naval propulsion business prospects remain robust, underpinned by the 30-year shipbuilding plan, supporting the government’s strategy to recapitalize the US Navy nuclear fleet. On top of a consistent procurement of Virginia-class submarines, the current shipbuilding plan calls for ten years of serial procurement of Columbia-class submarines beginning in 2026 and the potential for the Ford-class aircraft carrier to move to a four-year ordering center beginning in 2028. Additionally, the incremental demand for submarines resulting from the AUKUS trilateral security agreement should benefit BWXT. Australia’s recent announcement to invest $3 billion into the US naval manufacturing industrial base is a positive step in helping to increase US submarine production. Last week, BWXT announced a $300 million award for the manufacturing of naval nuclear fuel through mid-2025.The non-naval propulsion government business, which now comprises about 20% of the segment’s total revenue, up from about 15% just two years ago, is also seeing growth in emerging opportunities. This is led by the microreactor programs within the advanced technologies division of the segment.In Commercial Operations, revenue growth should benefit from a strong order backlog and healthy demand for commercial nuclear projects in 2024. The backlog is up sequentially for a third consecutive quarter and 14% over last year, highlighting the robust demand in the market, which should continue for the next several years due to the demand for nuclear power in Canada. The Ontario government is seeking to double the scale of the power grid by 2050 to meet projected demand and is fully committed to using nuclear to satisfy a large portion of this demand. This is evidenced by three recent developments, including Ontario Power Generation’s commitment to building four BWRX-300 small modular reactors at the Darlington site, life extensions of existing plants at the Pickering site, and the potential for new large-scale power reactors at the Bruce Power Nuclear Generating Station.Valuation & ConclusionBWXT’s stock is currently trading at 24.79x FY24 consensus EPS estimate of $3.10, which is at a premium to its five-year average forward P/E of 20.07x. In summary, I believe that despite having attractive growth prospects, prudence suggests that we exercise patience, allowing the market to correct itself before considering the purchase.More By This Author:
