BofA Moves To Sidelines On BWX Technologies, Says Growth Is Already Priced In

Shares of BWX Technologies Inc BWXT, a leading supplier of nuclear components and fuel to the U.S. government, are valued to the company's potential, according to Bank of America Merrill Lynch.

The Analyst

Analyst Ronald Epstein downgraded BWX from Buy to Neutral and maintained a $70 price target.

The Thesis

The two key growth themes for BWX are the prospects in U.S. Navy submarine and aircraft carrier procurement and potential long-term upside from its investment in medical radioisotopes, Epstein said in a Thursday note. (See the analyst's track record here.) 

The near- and medium-term growth from the two sectors is already priced into BWX stock, the analyst said. 

The U.S. Navy's plan to produce three Virginia-class submarines per year, from two per year, presents a $2-billion revenue opportunity over the next 15-20 years, Epstein said. 

The analyst projects the upside will result in as much as $501 million net present value, or $5 per share in valuation.

BofA values the company's medical isotope business at $5 per share, with the valuation assuming average annual revenues in the range of $100 million to $500 million and margins of 10-25 percent.

"A fourth Virginia-class submarine per year or better-than-expected success from BWXT's entrance into the medical radioisotope business could provide upside to our valuation," Epstein said. 

With BWX expecting revenues from the medical radioisotope business to kick in only after 2019, Epstein said significant upside from its estimated valuation is unlikely in the near term.

The Price Action

BWX shares have gained about 13 percent year-to-date.

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