Centrus Secures $900M DOE Enrichment Contract Amid Overvaluation and Lingering Risks

What happened

The Department of Energy allocated $2.7 billion for uranium enrichment contracts, with Centrus Energy winning a $900 million award to fund its expansion plans. This directly addresses a key watch item from the DeepValue report by providing near-term, funded task orders under DOE programs. However, Centrus remains heavily reliant on Russian TENEX for over half of its low-enriched uranium deliveries through 2027, creating persistent supply and sanctions risk. The stock has surged 242% in the past year and trades at 39 times trailing earnings, far above intrinsic value estimates, embedding aggressive expectations for HALEU and domestic enrichment success. While this contract boosts revenue visibility, it does not resolve fundamental issues like potential dilution from $1.21 billion in convertible debt or dependence on annual DOE appropriations.

Implication

The $900 million award increases Centrus' Technical Solutions backlog and provides clearer revenue streams for HALEU and LEU projects, supporting the growth thesis. Investors should monitor how this translates into specific task orders and execution milestones to assess future profitability and scalability. Despite this positive development, the stock remains overvalued, with a DCF model implying it is priced for perfection amid volatile earnings and free cash flow. Critical risks, including Russian supply disruptions, dilution from in-the-money convertibles, and competition from larger players, remain unchanged and could impair equity value. Therefore, while the contract is a step forward, it does not alter the need for caution until more tangible progress is shown in reducing dependency and delivering durable earnings.

Thesis delta

This contract win improves funding visibility and supports the growth narrative centered on DOE partnerships, addressing a key monitoring point. However, it does not materially reduce the stock's overvaluation or mitigate core risks such as reliance on Russian supply and potential shareholder dilution. Thus, the overall thesis of a potential sell due to aggressive expectations remains largely unchanged, with continued focus on execution and risk mitigation.