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Defense Modernization And Nuclear Energy Demand Will Unlock Future Market Potential

Published
25 Aug 24
Updated
27 Aug 25
AnalystConsensusTarget's Fair Value
US$181.50
11.8% undervalued intrinsic discount
27 Aug
US$160.03
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61.8%
7D
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Author's Valuation

US$181.5

11.8% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update06 Aug 25
Fair value Increased 22%

Analysts have raised their price target for BWX Technologies to $168.33, acknowledging long-term growth prospects from new nuclear opportunities but cautioning that the current valuation is stretched and upside is limited, leading to a Hold rating despite the higher fair value.


Analyst Commentary


  • Price target increased to better reflect long-term value from new build commercial nuclear opportunities.
  • Analysts see current valuation as stretched, reflected in a 50-times free cash flow multiple on 2025 estimates.
  • Despite the higher price target, limited upside is anticipated from current share levels.
  • Cautious outlook expressed due to valuation concerns outweighing long-term growth catalysts.
  • Transition from Buy to Hold driven by reassessment of risk/reward at present share price.

What's in the News


  • BWX Technologies raised full-year 2025 revenue guidance to $3.1 billion from $3.0 billion.
  • Mike T. Fitzgerald was appointed Chief Financial Officer after serving as interim CFO; he has a background in aerospace, defense, and financial operations.
  • Work began on fabricating the Pele microreactor core, a transportable 1.5 MW nuclear reactor for the Department of Defense, with fuel manufacturing completed and key partnerships with Rolls-Royce and Northrop Grumman.
  • BWX Technologies achieved a major milestone in manufacturing advanced TRISO nuclear fuel, enhancing production flexibility and supporting multiple reactor programs and market demand.
  • The company secured U.S. Naval Nuclear Propulsion Program contracts worth approximately $2.6 billion to manufacture reactor components for submarines and aircraft carriers over the next 6–8 years.
  • A joint venture led by BWXT and partners won the contract to manage Canadian Nuclear Laboratories, valued at CAD 1.2 billion annually for an initial six years, with a focus on science, technology, decommissioning, and Chalk River revitalization.

Valuation Changes


Summary of Valuation Changes for BWX Technologies

  • The Consensus Analyst Price Target has significantly risen from $148.30 to $168.33.
  • The Discount Rate for BWX Technologies has risen from 7.25% to 7.85%.
  • The Net Profit Margin for BWX Technologies has risen from 11.96% to 12.60%.

Key Takeaways

  • Strong defense and nuclear energy demand, government contracts, and new technologies are driving recurring revenue growth and earnings stability.
  • Expansion into microreactors, advanced fuels, and services increases high-margin opportunities and positions the company for further market and margin growth.
  • Heavy dependence on government contracts, volatile commercial demand, margin pressure, and workforce and supply chain risks threaten consistent profitability and future revenue growth.

Catalysts

About BWX Technologies
    Manufactures and sells nuclear components in the United States, Canada, and internationally.
What are the underlying business or industry changes driving this perspective?
  • Record $6 billion backlog (+70% YoY) and 23% quarter-over-quarter growth, driven by multi-year defense contracts, rapidly expanding opportunity pipeline, and accelerating nuclear energy/medical demand signal strong visibility into future revenue growth and earnings stability.
  • Two+ major Navy submarine/carrier propulsion agreements (worth $4.7B+) secured in the past 8 months, backed by sustained government support for defense modernization and nuclear triad reinforcement, support the outlook for recurring/compounding revenue and stable margins as the U.S. moves forward with its long-term shipbuilding plans.
  • Accelerating activity in advanced commercial nuclear (CANDU life extensions, international new builds, AP1000, SMRs) and acceptance of first U.S. SMR construction permit have increased BWXT's addressable market, positioning the company to benefit from the global energy transition and policy incentives-potentially driving significant, high-margin backlog and top-line growth.
  • Expansion into microreactors (Pele, potential DoD-wide procurement) and advanced nuclear fuels (TRISO contracts, defense enrichment, depleted uranium production) aligns with government decarbonization targets and national security priorities, creating new, higher-margin revenue streams and supporting future EBITDA margin expansion.
  • Recent acquisition of Kinectrics significantly broadens life-of-plant and nuclear services portfolio, deepening customer relationships and increasing recurring service revenue, which, alongside ongoing medical isotopes growth (20%+ YoY), underpins both margin durability and organic revenue compounding.

BWX Technologies Earnings and Revenue Growth

BWX Technologies Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming BWX Technologies's revenue will grow by 11.1% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 10.3% today to 12.6% in 3 years time.
  • Analysts expect earnings to reach $494.7 million (and earnings per share of $5.4) by about August 2028, up from $294.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $388 million.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 41.8x on those 2028 earnings, down from 51.7x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 34.9x.
  • Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 7.79%, as per the Simply Wall St company report.

BWX Technologies Future Earnings Per Share Growth

BWX Technologies Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Heavy reliance on long-term U.S. government and Navy contracts could expose BWX Technologies to material revenue and earnings volatility if there are future changes in defense budgets, political priorities, or procurement cycles, especially as major new awards now secure work for up to 8 years, making the backlog sensitive to shifts at contract renewal time.
  • Organic revenue in commercial operations declined despite overall segment growth being driven by acquisitions, suggesting that organic demand for core civil nuclear services can be lumpy and potentially vulnerable to timing of outages, regulatory processes, or shifting utility spending patterns, which could impact future revenue growth.
  • Margin pressure exists in commercial operations, with adjusted EBITDA margins down year-over-year due to unfavorable business mix, lower field services activity, and increased growth investments, indicating that higher capital intensity and fluctuating work mix may compress net margins in the future, particularly if growth investments do not yield expected returns.
  • Continued dependence on a specialized workforce, with the potential for talent retention or aging workforce issues, presents long-term risks to project delivery, cost control, and sustaining technical leadership, which could erode profitability and delay or jeopardize the execution of high-value nuclear and defense contracts.
  • While current supply chain and critical mineral pricing issues (e.g., zirconium) have stabilized and are largely passed through to customers, heightened regulatory, environmental, or commodity risks-such as more stringent nuclear regulations or new critical mineral shortages-could increase compliance costs and operational complexity, thereby negatively impacting long-term net margins.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $181.5 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 $250.0, and the most bearish reporting a price target of just $120.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.9 billion, earnings will come to $494.7 million, and it would be trading on a PE ratio of 41.8x, assuming you use a discount rate of 7.8%.
  • Given the current share price of $166.52, the analyst price target of $181.5 is 8.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  • 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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