3 Hot Nuclear Power Stocks, Plus 3 That Are Too Hot to Handle

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Nearly two years after the Fukushima Daiichi nuclear disaster in Japan generated a maelstrom of controversy for nuclear power, time and distance largely have quelled public fears, triggering a rebound in the industry’s image. But the threat of expensive new federal regulations — and bad PR at some troubled plants — could pose new challenges for many operators.

First the good news: A new poll by Bisconti Research found 73% of respondents believe U.S. nuclear plants are safe, and 68% favor nuclear energy. After the 2011 Fukushima nuclear disaster, only 43% favored building new nuclear plants in the U.S.

But the fallout from Fukushima could linger on as the U.S. Nuclear Regulatory Commission prepares to vote on new safety regulations — including radiation filters for vents on 31 older boiling water reactors (BWRs) that are the same type that failed in Japan. The Nuclear Energy Institute, which argues that the filters are unnecessary, estimates the vents will cost $45 million each.

Also, some troubled nuclear plants have been a drain for the utilities that operate them. For example, the shuttered San Onofre nuclear plant operated by Edison International’s (NYSE:EIX) Southern California Edison unit has cost the utility $402 million, according to its fourth-quarter earnings release out Tuesday. It will be far more costly to the company and its shareholders if the plant’s two reactors, which have been idled for more than a year after steam-tube leaks, remain offline — a decision that ultimately rests with the NRC.

Since any realistic plan to replace fossil fuels with cleaner energy sources must include nuclear, the industry will not go gently into its good night any time soon. But at least until the regulatory headwinds subside, it’s better to avoid companies that are under the microscope. So, here’s a look at three hot nuclear power stocks — and another three that could be too hot to handle, at least for right now:

Hot Enough to Handle

Dominion Resources (NYSE:D): Dominion, which pays a current dividend yield of 4%, operates seven pressurized water reactors (PWRs) at four plants — two are located in Virginia, one each in Wisconsin and Connecticut. The reactors are of a different type than the BWRs that would be affected by the vent filter proposal. Dominion will shut down its small Kewaunee plant near Green Bay this year not because of any safety issue, but because the small reactor was unprofitable because of high overhead and low energy prices. D’s remaining units are likely to continue churning out profit.

Southern Company (NYSE:SO): SO, with its 4.4% current dividend yield, operates six nuclear reactors at three plants: one in Alabama and two in Georgia. The two reactors at the Hatch Nuclear Plant in Georgia are BWRs; the other four are PWRs. The Energy Department reportedly is close to a deal with Southern on an $8.3 billion loan guarantee to back construction of two new reactors in Georgia — a good omen for the company’s nuclear ambitions.

NextEra Energy (NYSE:NEE): NEE operates four nuclear reactors at three plants: two PWRs near Manitowoc, Wis., and one each in Iowa and New Hampshire. The reactor at the Duane Arnold plant in Iowa is a BWR. NextEra’s two Point Beach reactors on Lake Michigan have been upgraded in recent months to boost safety and capacity. NEE pays a current dividend yield of 3.6%; however, it’s more attractive on a valuation basis, trading at 13.4 forward earnings vs. 15 for D and SO.

Too Hot to Handle

Exelon (NYSE:EXC): Exelon is the largest U.S. operator of nuclear reactors: Its 10 power plants and 17 reactors in New Jersey, Pennsylvania and Illinois account for some 20% of the industry’s total power capacity. But cheap shale gas and a sluggish economy have forced EXC to cancel $2.3 billion in plant upgrades. Post-Fukushima safety regulations are expected to cost Exelon $350 million over the next five years — that’s not counting the $15 million to $20 million per unit if the NRC requires the vent filters. EXC has 11 BWRs that would be affected by the order. Exelon has a lofty current dividend yield of 6.9%, but it’s still a little scary given the headwinds.

Entergy (NYSE:ETR): Entergy operates 12 reactors at 10 plants in eight states — five of the reactors are BWRs. ETR has faced rancorous public debate and court challenges over some of its reactors: A federal appeals court this week upheld a license extension for EXC’s Pilgrim plant in Massachusetts, but opponents will continue the fight. The Vermont Yankee plant faces similar opposition from state lawmakers. Last week, worker error caused the shutdown of one of the reactors at Entergy’s Indian Point plant in New York, and the NRC announced increased oversight for its FitzPatrick plant in New York. ETR has a current dividend yield of 5.4%, but the bad PR and legal action over some of its oldest reactors gives me pause.

FirstEnergy (NYSE:FE): FE operates four reactors at three nuclear plants — one in Pennsylvania, two in Ohio. The NRC has stepped up inspections at all four of the company’s reactors, according to regulatory documents on the NRC’s website. FE’s Perry nuclear plant near Cleveland has been under NRC scrutiny since a 2011 incident exposed contractors to radiation, and earlier this month, a worker died at the facility from a “medical incident.” FE’s current dividend yield is an attractive 5.6%, but with all of its reactors under the regulatory microscope and the stock riding a downward trend into 52-week lows this week, I’m not sold on it at this moment.

As of this writing, Susan J. Aluise did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2013/02/3-hot-nuclear-power-stocks-plus-3-that-are-too-hot-to-handle/.

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