With The Southern Company (SO), Nuclear Still Has a Chance

At times nuclear energy is hard sell. Even though the uranium doesn’t emit large amounts of greenhouse gases or require complicated transportation pipelines, the threat of a radiation leak has many people ready to abandon nuclear energy altogether. The Southern Company (NYSE:SO) is trying to prove that nuclear energy still has a future in America with a new nuclear power plant. Amid the negative sentiment, there are a number of reasons to be bullish on uranium.

SO Total Return Price data by YCharts

Southern Company is one of the stronger utilities on the market. It posted earnings per share (EPS) of $2.37 in 2010 and is expected to make $2.75 per share in 2013. Its current yield of 4.6% and five year dividend growth rate of 3.76% make it very attractive for dividend investors. Its debt load is reasonable with a total debt to equity ratio of 1.22.

The utility already has experience operating nuclear power plants with its current two unit Vogtle plant. It decided to expanded its nuclear operations and add two new units to the facility. Its construction is an important road mark for the U.S. nuclear industry. The Southern Company (NYSE:SO) is trying a number of new prefabrication techniques to help decrease costs and make nuclear energy more cost effective. If other utilities see that these plants can be built with modern techniques and provide cost effective baseload power, then nuclear energy may get a second wind in America.

The Future for Uranium Producers

There are number of bullish factors for uranium, and the potential for increased demand from the U.S. is only icing on the cake. Uranium is experiencing supply constraints and increased Asian demand. The majority of new nuclear demand will come from China with 28 nuclear reactors under construction and more on the way. Cameco Corporation (USA) (NYSE:CCJ) is a high quality uranium miner in Canada and it has already positioning itself to benefit from Chinese growth. Its Cigar Lake facility is expected to provide 18 million pounds per year of production once it is fully operation.

Even with Chinese growth and coming supply constraints from an ending U.S.-Russia deal, the Fukushima disaster has had an impact on Cameco. The company was forced cut back on a number of growth projects, but it is still profitable with a gross margin of 36.1% and a profit margin of 6.4%. With a total debt to equity ratio of 0.27, Cameco is a safe bet for long term investors.