4. BWX Technologies Inc. (NYSE:BWXT)
Number of Hedge Fund Holders: 26
PE Ratio (as of March 10): 16.48
BWX Technologies Inc. (NYSE:BWXT) provides nuclear components and products which include precision naval components, nuclear reactors and nuclear fuel, as well as missile launch tubes for United States Navy submarines. Its clients include the United States Department of Energy and the National Nuclear Security Administration’s Naval Nuclear Propulsion Program. The Virginia-based firm also provides commercial nuclear steam generators, fuel handling systems and pressure vessels.
In November last year, Maxim analyst Tate Sullivan gave BWX Technologies Inc. (NYSE:BWXT) a ‘Buy’ rating, noting that the firm’s investor day presentation indicated higher growth potential for the firm beyond 2024, driven by growth in its business of developing nuclear reactors for nuclear-powered aircraft carriers and submarines, as well as its global opportunity in nuclear medicine. BWX Technologies Inc. (NYSE:BWXT) posted an EPS of $0.95 for the fourth quarter, beating estimates by $0.02.
Investors were eager on BWX Technologies Inc. (NYSE:BWXT) in the fourth quarter of 2021, where 26 hedge funds recorded bullish bets on the company shares. In comparison, 17 hedge funds were seen holding positions in BWX Technologies Inc. (NYSE:BWXT) in Q3 2021. Cardinal Capital was the top shareholder in BWX Technologies Inc. (NYSE:BWXT) by the end of December, with 1.65 million shares worth $79.14 million.
Investment firm Upslope Capital Management discussed BWX Technologies Inc. (NYSE:BWXT) in its Q3 2021 investor letter, stating:
“BWX Technologies 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 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 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 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).”
