Stock Analysis & Ideas

NuScale Power (NYSE:SMR) – A High Risk, High Reward Nuclear Energy Stock

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Although nuclear energy represents a vital but controversial sector, NuScale Power and its facilitation of advanced small modular reactors could help shift public perceptions about the underlying industry. Therefore, investors willing to divert funds earmarked for speculation should consider SMR stock.

While the nuclear power industry remains a vital cog in the broader energy sector, this arena features many challenges. However, NuScale Power (NYSE:SMR) – a company that designs and markets small modular reactors or SMRs – may help change public perceptions about nuclear energy. While it’s undoubtedly a risky idea, the upside potential could be enormous. I am bullish on SMR stock.

Arguably, most people who read the marketing and scientific literature undergirding NuScale Power will come away impressed with the possibilities. At its core, NuScale’s highly reliable, uranium-driven platform enables greater integration of power networks, particularly in regions that are not suitable for traditional nuclear facilities. That’s because SMRs feature a physically smaller footprint than their traditional counterparts, promoting a “decentralized” network.

In other words, rather than having one giant nuclear facility emit power, several SMRs can be scattered across vast territories. While such a framework theoretically increases the footprint of possible disaster zones, the company notes that “Should it become necessary, NuScale’s SMR shuts itself down and self-cools for an indefinite period of time, with no operator action required, no additional water, and no AC or DC power needed.”

By implementing critical steps to prevent catastrophes, investors can focus on the positives underlining SMR stock. In July, I mentioned that the proliferation of SMRs may “help practically empower costly initiatives such as desalination (converting ocean water into potable or drinkable water).”

In fact, NuScale’s website states the following. “A NuScale VOYGR-6 plant, coupled with a reverse osmosis desalination plant, can have one module designated to produce 77 million gallons of clean water per day while the remaining modules cost-competitively provide ~366 MWe to the grid. That’s enough carbon-free energy to power a city of about 260,000 people.”

You’re just not going to get such practicality and energy density out of renewable energy sources like wind and solar. Compellingly, Wall Street analysts are starting to take notice of the opportunity behind SMR stock.

Analysts Weigh in on SMR Stock

Recently, Wells Fargo (NYSE:WFC) initiated coverage on SMR stock, assigning it an “Equal Weight” rating and a price target of $17. In addition, it’s not the only research firm that sees a generally positive outlook for NuScale.

On Aug. 15, Cowen (NASDAQ:COWN) upped its price target for SMR stock, also to $17. On Aug. 18, Guggenheim assumed coverage on NuScale shares, assigning it a “Buy” rating with a price target of $18. Adding to the intrigue, JPMorgan Chase (NYSE:JPM) acquired a new stake in the nuclear energy company during the second quarter that was worth about $92,000.

Granted, these developments aren’t earth-shattering. However, they may represent the first steps toward a comprehensively bright future for NuScale Power.

At the heart of the bullish narrative bolstering SMR stock is fundamental realities. While legislation such as the Inflation Reduction Act and broader public sentiment support the expansion of renewable energy infrastructures, the hard scientific fact is that nothing beats nuclear for reliability.

According to the Office of Nuclear Energy, the underlying source features a capacity factor of 92.5%. Stated another way, “nuclear power plants are producing maximum power more than 92% of the time during the year.”

Wind and solar? These two sources feature capacity factors of 35.4% and 24.9%, respectively. Logically speaking, in the case of solar, the platform produces max power less than a quarter of the time every year. Frankly, it’s incredibly difficult, if not outright impossible, for any country to depend solely on renewables.

Like it or not, nuclear power presents a readymade solution. Further, NuScale’s small reactors are also safer than their traditional counterparts, adding to the bullish thesis for SMR stock.

Patient SMR Stock Investors Could Enjoy Substantial Rewards

To be fair, the narrative for SMR stock is aspirational. Further, it may be aspirational for a while. Nevertheless, as a speculative market idea, patient buyers could enjoy substantial rewards.

First, the bad news. According to NuScale’s press release for its second quarter of 2022 earnings results, the company posted revenue of $2.7 million and a net loss of $21.4 million. While the top line represents a big improvement over the year-ago quarter’s tally of $400,000, the net loss in Q2 2021 came out to $24.7 million.

In the first half of this year, NuScale generated revenue of $5.2 million and a net loss of $44.8 million. Obviously, the company is a work in progress from a financial perspective.

Another factor that may dissuade some investors from SMR stock is that NuScale entered the public arena via a reverse merger with a special purpose acquisition company (SPAC). A controversial financial vehicle, SPACs waned in popularity among retail investors, particularly because of their dilutive profile.

Still, it’s important to realize that NuScale is not some fly-by-night operation. As the firm’s press release stated, the company enjoys a first-mover advantage. Specifically, the U.S. Nuclear Regulatory Commission (NRC) voted “unanimously to approve the design certification of NuScale’s SMR.”

As well, “NuScale is the only SMR vendor to submit an application for design approval, and the only SMR design approved by the NRC.”

Is SMR Stock a Buy?

Turning to Wall Street, SMR stock has a Moderate Buy consensus rating based on one Buy, one Hold, and zero Sells assigned in the past three months. The average SMR stock price target is $17.50, implying 22.5% upside potential.

Takeaway – SMR Stock is Smart Speculation

Although the vast majority of SPAC-based opportunities over the last two years have turned out to be duds, NuScale just might bring credibility back to this method of entering the public arena. Featuring a vetted innovation that’s fundamentally relevant, SMR stock may be an ideal prospect for speculators with a long-term time horizon.

Disclosure

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