3. BWX Technologies, Inc. (NYSE:BWXT)
Number of Hedge Fund Holders: 26
BWX Technologies, Inc. (NYSE:BWXT) makes and sells nuclear components. Elite hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, Wisconsin-based investment firm Cardinal Capital is a leading shareholder in BWX Technologies, Inc. (NYSE:BWXT) with 1.6 million shares worth more than $79 million.
One of the prominent members of the US Senate who holds large stakes in BWX Technologies, Inc. (NYSE:BWXT) stock is David Perdue. Perdue has made at least 15 trades related to the stock in the past few months totaling over 145,000 in volume. Only house member Rohit Khanna has more trades of BWX Technologies, Inc. (NYSE:BWXT) stock.
In its Q3 2021 investor letter, Upslope Capital Management, an asset management firm, highlighted a few stocks and BWX Technologies, Inc. (NYSE:BWXT) was one of them. Here is what the fund said:
“BWX Technologies, Inc. (NYSE:BWXT) designs and produces nuclear reactors, components and fuel, primarily for the U.S. Government and Navy (and, more recently, NASA). The company is the sole supplier for its Naval products (~75% of sales), which are used for the power and propulsion of all of the Navy’s aircraft carriers and submarines. With nuclear subs (aka “boomers”) forming the backbone of the “Sea” leg of the Nuclear Triad, BWX plays a vital and sensitive role supporting the national security of the United States. Of course, BWX is exceptionally well-positioned should the saber-rattling vis-à-vis China continue. The recent Aukus security pact, which may eventually benefit BWX, illustrates the urgent and strategic importance of maintaining a modern nuclear-powered sub fleet.
Even if relations with China stabilize (and hopefully they do), BWX Technologies, Inc. (NYSE:BWXT) shares seem poised to outperform. After four years of essentially going nowhere, the stock currently trades near the low-end of its historical valuation range – just over 13x EBITDA vs. typical range of 13-16x. With a literal monopoly position (albeit against a sole purchaser), BWX has historically generated modest top-line growth with attractive returns on capital (mid-20s). Given the stability of the business and its competitive position, as well as the current geopolitical backdrop, current valuation seems very reasonable.
Importantly, beginning in 2017 BWX Technologies, Inc. (NYSE:BWXT) embarked on an aggressive capex expansion program, eventually tripling capex as a percentage of sales. In addition to ramping capacity to support Navy growth, BWX spent heavily developing its medical/radioisotope business. While not yet concluded, there is light at the end of the tunnel that should bode well for shares. 2020 appears to have been the capex peak and BWX seems on track for more normalized capex by the end of 2022. This should lead to de-levering the balance sheet (from an already-reasonable 3x gross debt/EBITDA), a potential acceleration in capital returned to shareholders, and/or the prospect of increased M&A.
Lastly, while BWX’s core today is its Naval operations, there is long-term optionality from the other units (~25% of revenue), which are currently focused on Canadian nuclear power (fuel and components), medical, space (NASA) power, and microreactors. BWX faces little competition, if any, across many of these areas. A sizable portion (>50%) of the recent capex program was also invested in a new Mo-99/Tc99 radioisotope (essentially a cleaner, more cost efficient alternative to current products on market – used in cardiology, oncology, neurology, and diagnostics) production line that should lead to an acceleration in growth outside of Naval operations.
Major risk factors for BWX Technologies, Inc. (NYSE:BWXT) include the possibility of physical accidents, production defects and resulting liabilities, as well as cost pressures due to strained government budgets and/or rising input costs, some leverage (~2x net), and ESG flow headwinds (not fundamental, of course, but a reality).”