BWX Technologies stock (NYSE: BWXT XT ), a supplier of nuclear components and fuel, has seen a 9% rise this year, significantly outperforming the broader S&P500 index, down 23%. However, in the longer term, BWXT stock, with -13% returns from levels seen in late 2017, has underperformed the S&P 500 index, up around 37%. Despite the rise this year, BWXT stock has more room for growth, as discussed below.
This 13% fall for BWXT stock since late 2017 can primarily be attributed to 1. a 38% decline in the company’s P/S ratio to 2.2x trailing revenues currently, compared to 3.6x in 2017, partly offset by 2. BWX Technologies’ revenue rising 29% to $2.2 billion over the last twelve months, compared to $1.7 billion in 2017, and 2. an 8% fall in its total shares outstanding to 91.4 million. The increase in revenue and a fall in shares outstanding has meant that BWX Technologies’ revenue per share rose 40% to $23.80 over the last twelve months, vs. $16.99 in 2017.
Of late, defense stocks, including BWXT, have benefited from rising geopolitical tensions, considering the ongoing war between Russia and Ukraine. The ongoing war has also caused crude oil prices to surge to over $90 per barrel, compared to a $68 average in 2021, broadly helping nuclear energy stocks.
BWX reports its revenue under three segments – Nuclear Operations Group, Nuclear Power Group, and Nuclear Services Group. Note that BWX derives around 75% of its revenue from the U.S. government contracts, including designing and manufacturing nuclear components for the U.S. Navy and the Department of Energy.
BWX divested its U.S.-based commercial nuclear services business, weighing on its Nuclear Services Group segment revenues in 2021. However, higher volumes of in-plant inspection, maintenance, and modification services aided the revenues of the Nuclear Power Group.
Not only BWX Technologies’ revenue growth has been robust, but its operating margin has also been stable, even during the pandemic. The operating margins rose from 19.0% in 2017 to 20.9% in 2019 before falling to 19.5% over the last twelve months. Our BWX Technologies Operating Income dashboard has more details.
From a valuation point of view, BWXT stock looks like it has more room for growth. The company is expected to post revenue of $2.3 billion in 2022 (per the consensus estimates). Assuming the current share count of 91.4 million (reported for Q2 2022), we arrive at the expected revenue per share of $24.73 for the full year.
At its current levels, BWXT stock is trading at 2.1x forward expected revenues, compared to the last three-year average of 2.7x. Given the Russia-Ukraine conflict and an anticipated rise in defense spending, an upward revision in trading multiple for BWXT makes sense. Moreover, BWXT is trading at a lower multiple when compared to its historical average, implying that the stock is likely to see higher levels going forward.
While BWXT stock looks like it can gain more, it is helpful to see how BWX Technologies’ Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for TeleTech vs. Amerco.
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Critics by Zacks Equity Research
Investors with an interest in Electronics – Miscellaneous Components stocks have likely encountered both Kyocera (KYOCY) and BWX Technologies (BWXT). But which of these two companies is the best option for those looking for undervalued stocks? Let’s take a closer look.
Everyone has their own methods for finding great value opportunities, but our model includes pairing an impressive grade in the Value category of our Style Scores system with a strong Zacks Rank. The proven Zacks Rank puts an emphasis on earnings estimates and estimate revisions, while our Style Scores work to identify stocks with specific traits.
Kyocera has a Zacks Rank of #1 (Strong Buy), while BWX Technologies has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that KYOCY likely has seen a stronger improvement to its earnings outlook than BWXT has recently. But this is just one factor that value investors are interested in.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels. The Style Score Value grade factors in a variety of key fundamental metrics, including the popular P/E ratio, P/S ratio, earnings yield, cash flow per share, and a number of other key stats that are commonly used by value investors.
KYOCY currently has a forward P/E ratio of 14.66, while BWXT has a forward P/E of 16.14. We also note that KYOCY has a PEG ratio of 1.67. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company’s expected earnings growth rate. BWXT currently has a PEG ratio of 2.47.
Another notable valuation metric for KYOCY is its P/B ratio of 0.75. The P/B is a method of comparing a stock’s market value to its book value, which is defined as total assets minus total liabilities. By comparison, BWXT has a P/B of 6.71.
Based on these metrics and many more, KYOCY holds a Value grade of B, while BWXT has a Value grade of C. KYOCY has seen stronger estimate revision activity and sports more attractive valuation metrics than BWXT, so it seems like value investors will conclude that KYOCY is the superior option right now.