Why NuScale Energy Stock Is Down 8%

Actions of NuScale Power Corporation (SMR 11.53%) rose 8% by 10:20 a.m. ET Friday after investment bank CLSA initiated coverage on the stock with an “outperform” (ie, buy) rating and an $11 price target on the $9 stock.

If CLSA is right about this, NuScale investors stand to earn 18% returns over the next year — on top of today’s gain.

What CLSA said about SMR

And yet, if CLSA is bullish on NuScale’s stock, it has a funny way of showing it. Commenting on StreetInsider.com this morning, CLSA cautioned that NuScale is dependent on the support of the nuclear power plant builder and NuScale’s parent company. Fluor Corporation to cover its operating losses, which are expected to continue for at least “several years”.

The company will also need to win government subsidies in the form of “DOE cost-sharing programs” to cover its losses. And even then, CLSA anticipates that NuScale will need to sell shares and dilute shareholders through an “ATM Program” of share sales.

All things considered, CLSA doesn’t see SMR stock turning profitable before 2028.

Is NuScale Power Stock a Sell?

So why does CLSA like NuScale now if it doesn’t expect to turn a profit until four years from now? Probably, because until then NuScale do what becomes profitable, its share price will be much more expensive — but only time will tell if CLSA is right about that.

Meanwhile, investors should anticipate that NuScale’s share price will be “sentiment-driven” and driven primarily by headlines such as the company’s receipt of “regulatory approvals,” successful implementation of “proofs of concept ” for its small modular modules. reactor designs and “customer interest” (ie, contract announcements).

I’m not saying NuScale will fail on all of the above, but I do find the stock highly speculative. Currently deeply unprofitable and selling at more than 50 times earnings, NuScale stock should represent only a small percentage of an individual investor’s portfolio — if you give them any percentage at all.