Cambridge Plant Expansion And Nuclear Capacity Will Secure Future Edge

Key Takeaways

• Strong growth prospects in commercial and government operations segments due to increased backlog, acquisitions, and investments in nuclear projects.
  
• Strategic expansion and efficiency improvements position BWXT for significant revenue and earnings growth in both commercial power and special materials businesses.
  
• Increased competition, inflation impacts, and dependency on government contracts pose risks to BWX Technologies' revenue growth and profit margins across various sectors.

Catalysts

Manufactures and sells nuclear components in the United States, Canada, and internationally.

• BWXT's commercial operations backlog stands at $1.3 billion, up 78% year-over-year, driven by bookings such as the Pickering life extension steam generator contract, indicating strong future revenue growth.
  
• The company is positioned to grow its commercial power segment revenue by double digits in 2025, supported by long-term investments from major customers in nuclear generation capacity and SMR projects, likely enhancing revenue.
  
• BWXT's pending acquisition of Conectrix and the expansion of its Cambridge manufacturing plant will increase capacity by nearly 50%, likely fostering revenue growth and improved net margins through efficiency gains.
  
• The government operations segment supports a healthy revenue outlook, driven by 14% reported revenue growth and ongoing contracts like the management of DOE's strategic petroleum reserve and naval propulsion projects, promising stable revenue and profitability.
  
• BWXT’s special materials business, with anticipated large-scale opportunities such as high-purity depleted uranium supply and the advanced nuclear programs (e.g., NNSA pilot plant), suggest significant future earnings growth potential.

BWX Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BWX Technologies's revenue will grow by 10.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.4% today to 12.3% in 3 years time.
• Analysts expect earnings to reach $458.8 million (and earnings per share of $5.05) by about May 2028, up from $288.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 32.7x on those 2028 earnings, down from 34.2x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 32.4x.
• Analysts expect the number of shares outstanding to decline by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.85%, as per the Simply Wall St company report.

BWX Technologies Future Earnings Per Share Growth

Risks

• Increased competition and uncertainty in the microreactor and SMR markets could hinder BWX Technologies’ ability to capture significant market share, potentially affecting future revenue growth in these sectors.
  
• The temporary impact of inflation and unfavorable raw material cost absorption, particularly in zirconium, could continue to pressure margins in the commercial operations segment, impacting overall net margins.
  
• Delays in the FDA approval process for new medical products like Tech-99 could slow the anticipated growth in BWXT Medical, potentially affecting revenue projections and earnings in the medical division.
  
• The pace of realization of new business opportunities, such as the enrichment contracts or participation in large government programs like AUKUS, carries uncertainties that could impact BWXT’s expected long-term revenue growth and future earnings.
  
• Dependency on government contracts and regulation poses risks associated with changes in policy, funding, or geopolitical tensions, which could impact both revenue streams and profit margins for government-related projects.

Valuation

• The analysts have a consensus price target of $135.0 for BWX Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $166.0, and the most bearish reporting a price target of just $105.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.7 billion, earnings will come to $458.8 million, and it would be trading on a PE ratio of 32.7x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $108.13, the analyst price target of $135.0 is 19.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.