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NuScale Power: A nuclear energy "SPAC" that's worth betting on

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July 22, 2022
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Jump to heading NuScale Power: A nuclear energy "SPAC" that's worth betting on

Special purpose acquisition companies (SPACs) and nuclear power plants are now two of the most contentious topics in the financial markets. Given that it incorporates both ideas under a single heading, NuScale Power (SMR) occupies a unique position. Nevertheless, if you go beyond your first reservations, you could find a good investing opportunity.

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In a nutshell, NuScale went public through a reverse merger with a SPAC, in this instance Spring Valley Acquisition Corp. These businesses, often known as shell corporations or blank check companies, don't really have any real commercial activity. Instead, their purpose is to go public with an initial public offering (IPO), and a wish to merge with a viable private company.

SPACs seem to be a win-win situation on paper: the shell company joins a legitimate firm, and the target company gains access to the public market via a backdoor route. SPACs have really turned out to be a bit troublesome, especially for retail investors, since they are often dilutive owing to the issuance of warrants. It is hardly unexpected that businesses that went public via SPAC mergers have lagged the benchmark S&P 500 index significantly.

However, it's still feasible that SMR stock will become one of the very rare positive outliers in this industry. True, NuScale is a nuclear power plant, a sector of the economy that has been plagued by public unease after tragedies like Three Mile Island, Chernobyl, and Fukushima. Small modular reactors, or SMRs, are a new iteration that NuScale has pioneered, and they have the potential to change attitudes and energy paradigms.

Jump to heading Analysis of NuScale Power stocks

SMR has a 9 out of 10 Smart Score rating on TipRanks. This suggests that there is a good chance that the stock will outperform the overall market.

Jump to heading The story behind SMR stock

The namesake platform, according to the Office of Nuclear Energy, is America's workhorse. It all boils down to capacity factor, or the capacity to generate the most electricity possible in a certain time frame (usually one year). The capacity factor for nuclear-based plants is 92.5 percent, which means that for the majority of the year, nuclear energy continues producing electricity with no need for downtime.

Nothing compares to that. Geothermal energy, with a capacity factor of 74.3 percent, is in second position. The analogies then noticeably diminish. Capacity factors for coal, natural gas, hydropower, and the clean energy sources of wind and solar are 56.6 percent, 41.5 percent, 40.2 percent, 35.4 percent, and 24.9 percent, respectively.

Nuclear power becomes more relevant and attractive when you consider the terrible effects of Russia's conflict in Ukraine and the following suspension of most of the world's energy sources due to tit-for-tat geopolitical reprisal.

The SMR technology at its core, however, is what makes SMR stock valuable. These modular reactors, which are smaller than conventional nuclear power stations, may be installed in locations where conventional nuclear energy facilities cannot. Additionally, their more compact size may make it possible for cost structures to be more efficient while
Additionally, their more compact size may make it possible for cost structures to be more efficient while

The most crucial aspect of this ground-breaking technology is its enhanced safety profile, since smaller reactors need less heat to be dispersed in emergency situations. Additional nuclear power plants may also realistically support pricey programs like desalination (changing water from the ocean into potable or drinkable water).

Jump to heading Aspirational NuScale Power

Even if the story around SMR stock is immensely alluring, it is mostly just that up to this point. Financially, NuScale has an uphill struggle, so potential investors will need to have trust that the company will finally succeed.

For instance, NuScale recorded sales of $2.45 million in its most recent financial report for Q1 of 2022, up 268 percent from the same period last year. Despite the significant percentage increase, the nominal total is very low for an energy company. Additionally, NuScale saw a net loss of $23.4 million, up from a loss of $22.7 million in the first quarter of 2021.

It's also important to note that the company's operational cash flow was negative by $33.2 million in the first quarter of 2022, sharply deteriorating from a roughly $30 million deficit in the previous quarter. Again, potential investors must consider what may be rather than what is when considering an investment in SMR stock.

In truth, SMRs have drawbacks as well. Ironically, integrating modular reactors into many locations in order to successfully decentralize nuclear power also poses significant security issues, such as terrorism. Investors must thus exercise caution before spending their hard-earned cash.

Jump to heading The View from Wall Street on SMR Stock

Regarding Wall Street, SMR has received one Buy rating in the last three months, making it a Moderate Buy. The $15.00 price goal set by NuScale Power represents a possible gain of 24.9 percent. The Cowen & Co. analyst Marc Bianchi, who started coverage two months ago, provided the rating.




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Jump to heading Promising but unproven technology for the future

To be totally honest, SMR stock is a challenging investment. Although the energy revolution at its core is enticing, it has not yet been tested economically and practically. Innovative ideas may succeed, but they can also disastrously fail.

At the same time, Russia's invasion of Ukraine altered the larger energy balance. New nuclear technologies may soon come into focus, which would be advantageous for the SMR stock as governments cannot only rely on renewable sources to help make up for the shortage.

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(As of July 22, 2022, funds managed by Cohanzick Management, LLC and its affiliates do not own a position in NuScale Power (SMR).)

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