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Investing.com -- JP Morgan initiated coverage of Centrus Energy (NYSE:LEU) Corp with a Neutral rating and a price target of $148, arguing that a sharp run-up in the nuclear-fuel supplier’s shares already captures much of the benefit from U.S. efforts to bolster domestic enrichment capacity.
Centrus is the only U.S.-based, publicly traded company licensed to produce both low-enriched uranium (LEU) for today’s reactors and high-assay LEU for next-generation designs.
The bank said that distinction positions the firm to tap growing demand for secure, non-Russian fuel supplies – a potential market it values at more than $15 billion over the next decade.
But JPMorgan cautioned that converting pilot output into full commercial production at Centrus’s Piketon, Ohio, site will require “multi-billion-dollar” investment and clearer commitments on potential government awards of up to $3.4 billion.
Until that funding picture firms, the stock’s risk-reward looks balanced, it said.
Shares have more than doubled in the past six months amid congressional moves to restrict Russian imports and expand nuclear-energy subsidies.
At roughly 34 times projected enterprise value to EBITDA – twice the one-year average – the valuation “reflects a period of ‘atomic’ outperformance,” the note said.
Centrus’s trading arm has built a backlog that should strengthen the balance sheet, giving the company flexibility to pursue enrichment projects, JPMorgan added.
Still, it wants to see “de-risking of commercial-scale enrichment” before taking a more positive stance.
“We recommend waiting for a better entry point,” the analysts wrote, adding that while the company should trade at a premium because of its national-security role and limited substitutes, the shares may pause until financing and construction milestones come into view.