Morgan Stanley on how to play the global nuclear power renaissance
While promises of a nuclear renaissance have failed to deliver in the past, there are signals that this time around the hype may actually be real, according to Morgan Stanley. The firm’s analysts see Curtiss-Wright , a company that supplies nuclear plants with crucial parts, as a potential winner in the space. The investment bank raised Curtiss-Wright’s price target by $46 to $330, implying more than 17% upside from Friday’s close. The price bump is in part a mark-to-market value after Curtiss-Wright rallied 26% this year and 17% over the past three months. But the company also has an underappreciated growth story as an attractive “pick-and-shovels” way to play the nuclear renaissance theme, Morgan Stanley analysts led by Kristine Liwag told clients in a research note Thursday. Curtiss-Wright builds a crucial reactor coolant pump for Westinghouse’s third-generation AP1000 nuclear plants and there’s growing interest in these builds in Europe in particular. “Future AP1000 sales remain an exciting source of potential upside for CW, in our view,” Liwag and company said in the note. Talk of a nuclear renaissance 15 years ago fizzled due to the political emphasis on renewables and competitively priced alternatives, the Morgan Stanley analysts said. The 2011 Fukushima nuclear disaster in Japan also heightened scrutiny on safety. But there are growing signs a resurgence is on the horizon. Electricity demand is forecast to surge due in part to the growth of data centers and artificial intelligence. Demand is growing at the same time that countries are in search of reliable carbon-free energy to address climate change. CW 1Y mountain Curtiss-Wright shares over the past year After a spate of nuclear plant closures over the past decade, reactors are now being modernized to extend their service life and communities are showing interest in new plants as they phase out coal, according to the Morgan Stanley analysts. Curtiss-Wright sees 20 to 25 new third-generation nuclear power plant builds on the horizon in Europe alone over the next decade as nations there try to shore up their energy independence in the wake of Russia’s full-scale invasion of Ukraine. In Morgan Stanley’s base case, in which Westinghouse wins 50% of those contracts to build AP1000s, Curtiss-Wright would expect to book $1.5 billion in revenue for its reactor coolant pumps over a five-year horizon. Each plant requires four such pumps. In the more immediate future, Curtiss-Wight is poised to benefit from current plants modernizing to extend their service life. The company supplies all 94 reactors in the U.S. and all 19 in Canada as well as plants in South Korea. Modernization of current nuclear plants in the U.S. is a $7 billion opportunity through 2050, according to Curtiss-Wright management. In a bull case, Curtiss-Wright could realize $4.9 billion in revenue through 2050 on AP1000 builds, Morgan Stanley estimates. In this scenario, the company’s valuation rises to $488 per share, implying nearly 74% upside from Friday’s close.
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