George Gianarikas, an analyst at Canaccord Genuity, is a big fan of NuScale Power (SMR 11.83%), one of the most popular nuclear energy stocks on the market today. This month, he reiterated his "buy" recommendation on the stock, reaffirming his $25 price target. If his predictions come to pass, NuScale shares could have more than 100% upside over the next 12 months.
Is this Wall Street analyst warranted in his bullishness? Let's find out.
Does NuScale stock really have 107.1% upside potential?
The first thing to get out of the way is that predicting short-term fluctuations in stock prices is a very challenging game. Most Wall Street analysts have so-so track records when it comes to setting 12-month price targets. It's for that reason that you frequently see these price targets adjusted throughout the year, often following big upward or downward price action.
That said, Wall Street analysts spend a lot of time -- indeed, nearly their entire workdays -- trying to figure out where a certain stock price is headed. So listening to their conclusions is worthwhile, as long as their advice isn't followed blindly.
NYSE: SMR
Key Data Points
Right now, Gianarikas is one of the most bullish analysts covering NuScale stock. In total, 15 analysts currently cover the stock, with an average price target of just $15.67 -- far below Gianarikas's $25 price target. What makes Gianarikas so bullish? He apparently is a big fan of the company's project pipeline, as well as its specific approach to nuclear energy.
NuScale isn't just any nuclear developer. It specializes in small modular reactors, or SMRs, which, in theory, can be built faster and at a lower initial price point than larger conventional nuclear power systems. This makes NuScale's technology a better fit to meet rising electricity demand in the U.S. and abroad -- a trend driven by the massive build-out of energy-intensive data centers.
Whereas SMR competitors like Oklo are focused on so-called "microreactors" that can be placed directly adjacent to data centers, NuScale is focused on larger, grid-scale applications like its deal in the U.S. with the Tennessee Valley Authority (TVA), or its deal in Romania with RoPower.
Gianarikas specifically called out the promise of TVA as a long-term partner in a recent note to investors. Reports suggest that he views this deal as a "transformative opportunity that could significantly accelerate NuScale's path to commercialization and scale." In the same note to investors, Gianarikas praised NuScale's deal with RoPower. Reports say that he views this project as "validation of NuScale's technology and global appeal."
Image source: Getty Images.
I agree with all of the bullish points made by Gianarikas. But that doesn't mean that I also see 107.1% upside over the next 12 months. And there's one major reason why.
"Despite acknowledging execution and operational risks, [Gianarikas] maintains confidence in NuScale's long-term prospects and values the stock using a DCF framework with a 14% WACC and 5% terminal growth rate, supporting an unchanged $25 price target and continued Buy rating," concluded one report after Gianarikas reiterated his price target.
These so-called "execution and operational risks" are what keep me on the sidelines regarding NuScale stock today. These risks are at least partially offset by Gianarikas's high discount rate, but even that elevated rate is arguably too generous.
Put simply, the bull and bear cases for NuScale are very asymmetric. The bull case sees the company execute on all its current pipeline on time and on budget, with more partners filling the pipeline quickly following successful case studies. Conversely, there could be delays or cost overruns, pushing the company's path toward profitability and resulting in massive shareholder dilution.
NuScale Power remains a very promising business in the long term. But predicting the company's share price over the next 12 months is next to impossible. Don't jump in unless you're willing to accept both heavy volatility and a very extended holding period.
