By Rich Smith, The Motley Fool
Fluor builds nuclear power plants and owns a majority stake in modular reactor builder NuScale. Most of Fluor’s market capitalization, in fact, is backed by its ownership stake in NuScale. Much of the rest of Fluor’s current market capitalization is backed by cold, hard cash.
Powered up by a series of four executive orders signed by President Donald Trump in May, nuclear power stocks are red hot right now (in a good way) — but not all nuclear stocks are created equal.
Take Nano Nuclear Energy, NuScale Power, and Oklo, for example — three start-up companies looking to develop a new generation of smaller-than-ordinary nuclear power plants. All three have outperformed the broader S&P 500 over the past year, from Nano with its 23% gain to NuScale, up 250%, and Oklo up 590%.
Investors clearly like the idea of the smaller, cheaper, safer nuclear reactors these companies all promise to produce. Yet none of the three is anywhere near profitability, and according to analysts polled by S&P Global Market Intelligence, none of them is expected to even begin earning profits before 2030 at the earliest.
But there is one nuclear stock that’s already earning profits: Fluor (NYSE: FLR). What’s more, it also happens to be the majority owner of one of these very high-profile small modular reactor companies.
Introducing Fluor
According to S&P Global data, Fluor owns nearly 57% of NuScale. What’s more, with NuScale currently valued at $5.1 billion — and with an implied market capitalization of $10.8 billion — Fluor’s 57% interest in the company accounts for $6.1 billion of Fluor’s own market capitalization.
Put another way, if you subtract out the value of Fluor’s interest in NuScale from Fluor’s own $8.5 billion market capitalization, investors are valuing Fluor-ex-NuScale at only $2.4 billion. This fact alone suggests that buying shares of Fluor could be a smart way to invest in NuScale — but that’s not all.
Fluor, it turns out, is that rare heavy industry company with more cash than debt on its balance sheet — $1.4 billion worth of cash, in fact. Subtract that cash from the $2.4 billion, and Fluor-ex-NuScale, ex-net cash, ends up being valued by investors at just $1 billion.
That’s less than the net profit Fluor earned over the last 12 months: $1.8 billion. And buying a non-NuScale business at effectively just half its annual profit sounds like a very smart way to invest $1,000 or so.
Caveats and provisos
I know, I know. That sounds too good to be true, and when something sounds too good to be true, it probably is. Deep values like this just shouldn’t be the kind of thing that Wall Street analysts fail to notice, so there’s probably a catch.