Shares of Centrus Energy Corp. LEU fell 10% yesterday after it announced that its main supplier TENEX’s export license has been rescinded as Russia has banned the export of low-enriched uranium to the United States or U.S.-registered entities. Per the current mandate, TENEX has to obtain a specific export license to ship low-enriched uranium to Centrus. If it fails, Centrus may face challenges in fulfilling its delivery commitments to customers, which could affect its results.

The Centrus Energy stock closed at $68.50 yesterday, falling below its 50-day simple moving average (SMA) of $70.73, signaling a potential downtrend. The 50-day SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

LEU Trades Below 50-Day SMA

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With this recent setback, Centrus Energy has experienced a 27.5% drop in its stock price over the past month compared with the industry’s decline of 9.4%. The broader Zacks Basic Materials sector has declined 6.1%, while the S&P 500 has grown 1.1% during the same period.

Meanwhile, Centrus Energy’s peers Energy Fuels UUUU, Denison Mine Corp DNN and Uranium Energy UEC have fared better, gaining 4.2%, 3.5% and 2%, respectively, over the past month.

LEU's 1-Month Price Performance

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Does LEU’s price decline represent a buying opportunity? Or are there enough near-term concerns to give the stock a miss at the moment? Let us delve deeper.

Cancellation of TENEX’s License Puts LEU’s Results at Risk

Under the 2011 TENEX supply contract, Centrus Energy purchases the separative work units (SWU) contained in the low-enriched uranium received from TENEX. Centrus Energy delivers natural uranium hexafluoride to TENEX for the LEU’s uranium component. This is subject to quotas and other restrictions applicable to commercial Russian low-enriched uranium. 

The United States had imposed a ban on Russian uranium imports earlier this year. However, waivers may be granted to allow the import of limited amounts of Russian-origin LEU under certain circumstances until Jan. 1, 2028. Centrus Energy had received such a waiver from the U.S. Department of Energy (DOE) in July, allowing it to import low-enriched uranium from TENEX for delivery to U.S. customers in 2024 and 2025.

On June 7, 2024, Centrus Energy filed a second waiver request application to allow for the import of low-enriched uranium from Russia for processing and re-exporting to the company's foreign customers. It is currently awaiting DOE's approval. LEU plans to file a third waiver request application to allow for imports for its deliveries in 2026 and 2027.

Now that Russia has retaliated by imposing restrictions on exports of enriched uranium to the United States, it exacerbates Centrus Energy’s woes. Russia has clarified that exemptions will be made for deliveries under one-off licenses issued by the Russian Federal Service for Technical and Export Control. 

TENEX’s current license to export low-enriched uranium to the United States has thus been revoked. It is now required to obtain a specific export license from the Russian authorities to meet its remaining shipment commitments of low-enriched uranium to Centrus Energy. While TENEX indicated that it would proceed to do so, there is no guarantee whether these licenses will be granted. In case it receives the approval, it is unclear whether it will be issued in proper time to ensure delivery to Centrus Energy.

Centrus Energy had stated that through 2027, more than half of the low-enriched uranium that it expected to deliver to customers would be sourced under the TENEX Supply Contract. While the company has other sources, they cannot replace the TENEX supply. Thus, if TENEX cannot secure the approval, this loss in supply would hinder Centrus’ ability to fulfill its delivery commitments, and materially impact its results and competitive position. The company might be forced to buy the enriched uranium in the spot market, which could further pressure margins.

Considering that Centrus Energy does not mine uranium, this dependence on suppliers like TENEX to meet customer demand creates a substantial vulnerability.

LEU Reports Weaker-Than-Expected Q3 Earnings

Centrus Energy reported a loss of 30 cents per share in the third quarter of 2024, falling way short of the Zacks Consensus Estimate of earnings of 18 cents due to lower margins. LEU reported earnings per share of 52 cents in the third quarter of 2023.

Revenues were $57.7 million for the quarter, surpassing the Zacks Consensus Estimate of $47 million. This compares with year-ago revenues of $51.3 million. 

Gross profit declined 21% to $8.9 million in the third quarter as increased gross profit in the Technical Solutions segment was offset by lower gross profit in the LEU segment. Gross profit in the LEU segment was lower due to the decrease in sales volume, partially offset by the composition of contracts in the current quarter, which included higher-priced legacy contracts. Centrus Energy’s gross margin contracted 660 basis points year over year to 15.4%.

Estimate Revision Trend of LEU

Earnings estimates for Centrus Energy for 2024 have moved down 21.6% to $2.40 over the past 60 days and the same for 2025 has declined 5.7% to $2.83. The negative estimate revision depicts bearish sentiments for the stock.

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Disparity Between LEU's Revenue & Earnings Growth

The charts below show the trend in Centrus Energy’s revenues and earnings over the past three years. While LEU has seen a 3-year CAGR of 9% in its top line, the bottom line grew at a slower pace, seeing a CAGR of 4.2%.

LEU’s Revenue Trend in Past 3 Years

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LEU’s Earnings Trend in Past 3 Years

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LEU’s Valuation Looks Stretched

Centrus Energy’s stock is trading at a premium to the industry and broader market. Its forward 12-month P/E ratio of 24.67 is higher than the industry average of 20.23. It is also higher than the Basic Materials Sector’s 14.6 and S&P 500’s 22.13.

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LEU’s Value Score of F reinforces concerns around its overvaluation, signaling that its current price may not align with underlying fundamentals.

LEU Banks on Long-Term Demand Prospects for HALEU

Centrus Energy is pioneering the development of a high-performance nuclear fuel component called High-Assay, Low-Enriched Uranium (HALEU), which is expected to be needed in the next few years to power both existing reactors and a new generation of advanced reactors to meet the world’s growing need for carbon-free electricity. 

Under a contract with the DOE, Centrus is deploying a cascade of AC100M centrifuges at the American Centrifuge Plant in Piketon, OH — the first facility licensed by the U.S. Nuclear Regulatory Commission for HALEU production. In October, Centrus Energy announced that its subsidiary, American Centrifuge Operating, LLC, was selected by the DOE as an awardee for HALEU production and HALEU deconversion contracts. 

Per the World Nuclear Association, as of end of September 2024, there were 67 reactors under construction worldwide, approximately one-half of which are in China. The United States, with more than 90 operating reactors, is the world’s largest market for nuclear fuel.

Better to Avoid Centrus Energy Stock for Now

Given Centrus Energy’s major reliance on TENEX for the supply of low-enriched uranium, the company was already at risk and dependent on waivers following the United States’ ban on imports from Russia. The cancellation of TENEX’s export license adds to its challenges. If TENEX fails to obtain the necessary approvals, this will severely impact LEU’s delivery commitments and, thereby, its results. Considering this uncertainty, coupled with the downward earnings estimate revisions and its premium valuation, it may be wise to hold off on investing in Centrus Energy at this time.

LEU currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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