USEC, Inc. (USU)

epetroel (99.38) Submitted: 10/05/07 1:35 PM : Start Price: $9.47 USU Score: -14.69

The market hates uncertainty, and this company has lots of it.

First, their long term success depends largely on the success of their new state-of-the-art "American Centrifuge" plant which should dramatically reduce their costs in refining uranium (and consequently make them dramatically more profitable). However, that project has been beset with delays and cost overruns (first it was supposed to cost 1.7B, then 2.3B, now 2.5-2.8B).

Second, their contract with the Russian government under their "Megatons to Megawatts" program to convert old nuclear warheads to fuel for reactors is set to end in 2013. After that point, the Russian government will essentially be competing with them. The company has been lobbying the U.S. government pretty intensely to prevent the Russian govt. from eating their lunch here in the U.S. after 2013, but there have been no promises made by the govt. to help them yet.

Third, in order to finance their American Centrifuge project, they have issued a huge number of additional shares and convertible securities that have diluted the value of the existing shares. They have also indicated that they may do this again in 2008 to raise more money for that project.

There are a number of other smaller issues, but those seem to be the biggies. Regardless of all the issues, I'm still thinking it's a buy at this price. Unless the company goes bankrupt (which seems unlikely) you're probably going to do well with it over the next year or two.

Report this Post Replies: 0 | Reply | Permalink