M&A Activity, Industry Diversification & A Defense Contract Monopoly Will Push BWXT For Healthy Long-Term Growth

Catalysts

• Continuous growing demand of SMRs (Small Module Reactors), particularly in the US and Canada, positions BWXT for sustained growth as one of the leaders in the industry
• With the current administrations push for more nuclear energy with multiple announcements of funding in nuclear infrastructure & fuel, BWXT sits ready to take advantage of market tail winds when more news crosses the ticker.
• Having a ‘monopoly’ on government contracts regarding nuclear reactor engines on submarines & aircraft carriers helps position BWXT for all government related news in the industry. Being the only contractor that develops, manufactures & maintains the engines for those vehicles almost guarantees consistent multi-billion dollars in contracts from the DoD.
• With over 80% of revenues coming from government operations, BWXT is set maintain, if not, grow its revenue from the government spending and contracts issued by the current administration. Piggy backing the government contracts and spending, BWXT continues the expansion of commercial operations with the help of the Kinectrics acquisition and increases in demand for medical isotopes only adds bonus points to their revenue diversification.

Valuation

• I believe that profit margin growth will be slower in the short-term as BWXT has spent $625 million over the last year acquiring L3 Harris’s A.O.T (Aerojet Ordinance Tennessee) team & Kinectrics Inc, a Canadian leader in power plant support systems including CANDU reactors and a supplier & producer of isotopes for the radiopharmeceutial industry. BWXT has said that both acquisitions would be integrating into their company and taking on all debt and retaining all employees from each company. This will help grow and expand the companies reach in all areas of their market share but I believe we won’t see the effect of these acquisitions for years to come.

Risks

• With the current administration being indecisive with government funding and spending, any cuts to defense spending or pull back on previous news of industry funding could limit the long-term growth of the industry and hurt long-term outlooks on revenue projections. Any immediate reaction from the market on this potential news could drop the price of the stock significantly in the short term.
• Push and pressure from regulators beyond this administration and outside of the US could slow the short-term growth as there is still a mistrust & misunderstanding with the public when it comes to safety and environmental impact of nuclear energy.