Centrus Begins Centrifuge Manufacturing; Execution Risks and Valuation Remain Key Concerns

What happened

Centrus Energy has initiated industrial-scale centrifuge manufacturing at its Ohio facility, progressing its plan to restore U.S.-owned uranium enrichment after a decade-long gap. This step aligns with strategic DOE-backed initiatives to reduce reliance on foreign suppliers, particularly Russian TENEX, amid tightening sanctions and energy security policies. However, the DeepValue master report indicates that much of Centrus's $3.9 billion backlog is contingent on successful financing and construction of new capacity at Piketon, with recent financials showing volatile earnings, including a Q3 2025 gross loss in the LEU segment due to higher costs and lower SWU prices. The stock trades at approximately 42x TTM EPS and over 3x the DCF reference value of $64.71, embedding high expectations for flawless execution despite policy dependencies and supply chain uncertainties. Thus, while the manufacturing start is a positive operational milestone, it does not address the core issues of overvaluation and execution risk highlighted in the filings.

Implication

The scale-up in centrifuge manufacturing is a key milestone for Centrus to potentially convert its contingent backlog into firm revenue, supporting its role in U.S. energy independence. However, it does not immediately mitigate the company's heavy reliance on Russian supply under waivers or reduce dependence on continued DOE funding and contract awards. Financially, the stock's high multiples, such as ~50x EV/EBITDA, suggest the market has already priced in substantial success, leaving little margin for error in execution. Execution risks, including capex overruns at Piketon and Oak Ridge, regulatory hurdles, and potential dilution from convertible debt, could delay profitability and strain the balance sheet. Therefore, while this news aligns with long-term strategic goals, fundamentally oriented investors should await evidence of sustainable margins, backlog conversion, and valuation normalization before considering a position at current prices.

Thesis delta

The initiation of industrial-scale centrifuge manufacturing does not materially shift the bearish thesis from the DeepValue report, which emphasizes overvaluation and execution risks. It represents progress on a key watch item for Piketon execution, but without accompanying improvements in financial metrics, such as reduced contingency in backlog or positive LEU margins, the STRONG SELL stance remains justified. Investors should monitor subsequent DOE task orders and margin trends for any meaningful reduction in risk that could warrant a reevaluation.