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3 Overlooked Nuclear Stocks That Haven't Gone Parabolic Yet
The artificial intelligence (AI) megatrend is here to stay, but this revolutionary technology is expected to drive a steep surge in energy demand. According to a report from the International Energy Agency (IEA), data centers could account for a third of the increase in electricity demand through 2026.
Several tech giants are turning to nuclear energy to fulfill this demand as they continue to spend heavily on training and deploying generative AI models. Recently, Microsoft (MSFT) inked a 20-year deal with utility heavyweight Constellation Energy (CEG) to power its data centers. Amazon (AMZN) and Alphabet (GOOG)(GOOGL) have also joined the nuclear energy renaissance, driving the share prices of nuclear stocks sharply higher.
Keeping this in mind, here are three overlooked nuclear stocks that are flying under the radar, according to analysts at SocGen.
#1. Rolls-Royce Stock
Valued at $62.7 billion by market cap, Rolls-Royce (RYCEY) is an industrial technology company with four primary business segments: Civil Aerospace, Power Systems, Defense, and New Markets. Its New Markets business develops, manufactures, and sells small modular reactors (SMRs) and new electrical power solutions.
Earlier this year, Rolls-Royce announced that CEZ Group, a Czech-based state utility, has selected it as the preferred supplier for a mini nuclear reactor program. Last month, the U.K. government also identified Rolls Royce as one of four companies for its SMR program.
The global SMR program is forecast to touch $72.4 billion by 2033 and $295 billion by 2043, indicating a compound annual growth rate of 30%. In an investor presentation, Rolls-Royce said it expects to generate an operating profit of $3.4 billion by 2027, with a margin of at least 13%. It also projects a return on capital of between 16% and 18% with free cash flow between $3.62 billion and $4 billion.
Out of the seven analysts covering RYCEY stock, six recommend “strong buy” and one recommends “strong sell.” The average target price for RYCEY is $8.60, indicating an upside potential of over 16% from current levels.
#2. Flowserve Stock
Flowserve (FLS), valued at $7.1 billion by market cap, designs, develops, manufactures, distributes, and services industrial flow management equipment. It participates in all forms of energy generation, including coal, natural gas (NGZ24), nuclear energy, solar power, wind, and hydrogen. Its diversified business lines enabled the company to end Q3 with a significant installed base across pumps, valves, and seals.
Flowserve’s nuclear energy-related bookings touched $100 million in Q3 due to demand from legacy assets and new nuclear capacity built in Europe and Asia. Its project funnels for nuclear power rose 20% year over year in the September quarter as the company benefits from its existing nuclear product and service expertise.
Analysts tracking FLS stock expect adjusted earnings to expand from $2.10 per share in 2023 to $3.19 per share in 2025. So, priced at 18 times forward earnings, FLS stock is not too expensive.
Out of the 11 analysts covering FLS stock, seven recommend “strong buy,” three recommend “hold,” and one recommends “strong sell.” The average target price for the nuclear energy stock is $58.50, indicating an upside potential of over 8% from current levels.
#3. Korea Electric Power Stock
The final stock on my list is Korea Electric Power (KEP), an electric utility company that generates, transmits, and distributes electricity in South Korea and internationally. It generates power from nuclear, coal, oil (CLZ24), liquefied natural gas (LNG), internal combustion, integrated gasification combined cycle, hydro, wind, solar, fuel cell, biogas, and other sources.
The company provides electricity to residential, commercial, educational, industrial, and agricultural entities. KEP ended 2023 with 794 generation units with an installed generation capacity of 83,235 megawatts.
The single analyst covering KEP stock has a “strong buy” recommendation, with the target price of $10 representing a premium of 21% above the current price.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
