Infrastructure

Uranium, Nuclear Energy Moving Forward, But USEC is Not (USU, URRE, UEC, URG, URZ, GE, CCJ, HIT, URA)

Uranium processor USEC Inc. (NYSE: USU) reported earnings this morning and offered some partial guidance for 2011. The company’s fourth-quarter diluted EPS came to $0.05 on revenue $666.4 million, compared with expectations of EPS of $0.01 on revenue of $650.6 million. The company also reported full-year diluted EPS of $0.05 on revenue of $2.04 billion, compared with estimates for EPS of $0.01 on revenue of $2.02 billion.

A variety of other uranium and nuclear-based companies have really outperformed USEC over the past 12 months. Uranium Resources, Inc. (NASDAQ: URRE), Ur Energy Inc. (NYSE: URG), Uranerz Energy Corp. (NYSE: URZ), and Uranium Energy Corp. (NYSE: UEC) have all posted share price gains of more than 50% in 2010. Uranium Resources’ shares gained about 300% in the past 12 months.

USEC is counting heavily on a $2 billion loan guarantee from the US Department of Energy for construction of its American Centrifuge Plant. Without the loan guarantee, USEC “will not continue spending on the project.” The company tentatively plans to spend $50 million in the first quarter of 2011.

The company’s fragmentary guidance for 2011 is pushing the share price down this morning. USEC said it expects 2011 revenue of $1.7 billion, well below previous analysts’ expectations of $2.01 billion. USEC expects a decline of 10% in sales and a “significant” decline in revenue related to decommissioning the gaseous diffusion enrichment plant at Portsmouth, Ohio.

USEC also did not offer guidance for earnings or cash flow from operations. The company did say, however, that “we expect to report a net loss for the year.” USEC expects gross profit in 2011 of $70-$80 million, and SG&A expenses of about $60 million. Add to that the anticipated expenditure of $50 million in the first quarter for the centrifuge plant, and the red ink really starts to flow.

It could be that USEC is just in the wrong part of the uranium/nuclear industry. Canadian miner Cameco Corp. (NYSE: CCJ) even posted a larger share price gain in the last 12 months than did USEC. Reactor builders like France’s Areva or GE Hitachi Nuclear Energy, a joint venture between Hitachi, Ltd. (NYSE: HIT) and General Electric Co. (NYSE: GE), are having far better luck cashing in on the new interest in nuclear power generation plants.

The Global X Uranium ETF (NYSE: URA) has also performed better in its short life than USEC, though 4.05% of URA’s holdings are USEC stock. URA’s largest holding is Cameco, which represents 17.57% of the ETF’s holdings, and its top four holdings, accounting for more than 50% of the ETF’s total assets, are miners. Digging uranium out of the ground or building nuclear generation plants is where the value is, not in enriching uranium fuel.

USEC’s shares are trading down nearly -7% at around noon today, at $5.23, within the stock’s 52-week range of $3.90-$6.50. Volume is about three times the daily average.

Paul Ausick

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