Centrus Q3 Revenue Surge Masks Persistent Overvaluation and Russian Risk, No Thesis Change

What happened

Centrus Energy reported a 30% jump in Q3 revenues, driven by renewed uranium sales and strong growth in its Technical Solutions segment from the DOE HALEU contract. This quarterly performance reflects the company's exposure to tightening uranium and enrichment markets, with spot prices rising to $220/SWU by September 2025. However, the revenue increase does not address core vulnerabilities highlighted in the DeepValue report, such as heavy reliance on Russian TENEX for over half of LEU deliveries through 2027, subject to volatile policy waivers and export licenses. The stock trades at approximately $243 per share, around 275% above DCF-based intrinsic value estimates of ~$65, indicating extreme overvaluation despite recent gains. Furthermore, $1.2 billion in convertible debt creates long-term dilution and refinancing risks, compounded by earnings volatility and emerging domestic competition in HALEU.

Implication

Investors should interpret the Q3 revenue surge as part of Centrus's historically volatile earnings pattern, rather than a sustainable trend, given lumpy contract timing and working-capital swings. The persistent dependence on Russian supply, coupled with geopolitical and sanctions risks under the Import Ban Act, leaves the company vulnerable to disruptions that could erode backlog and customer confidence. With $1.2 billion in convertible notes, equity faces significant dilution or refinancing challenges, undermining the net-cash balance sheet advantage despite recent free cash flow strength. Competitive pressures from new domestic players like General Matter threaten to erode Centrus's transitional HALEU moat as policy support diversifies, potentially compressing future margins. Consequently, the stock's premium valuation lacks a margin of safety, and any upside from policy tailwinds is already priced in, suggesting downside risk remains asymmetric.

Thesis delta

The Q3 revenue increase does not shift the 'STRONG SELL' thesis, as it aligns with expected volatility and does not address key watch items like de-risking Russian supply or securing major new contracts. Until concrete progress is made on supply diversification, DOE funding stability, or a valuation reset toward peer ranges, the bearish stance remains justified due to overvaluation and binary risks.