Are You Backing The Right Horse With Centrus Energy Corp (LEU)?
Centrus Energy Corp (AMEX:LEU), a USD$34.08M small-cap, is an oil and gas company operating in an industry which has endured a continued decline in oil prices since mid-2014. However, energy-sector analysts are forecasting for the entire industry, a positive double-digit growth of 25.87% in the upcoming year , and an enormous growth of 67.63% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Is the oil and gas industry an attractive sector-play right now? Below, I will examine the sector growth prospects, and also determine whether LEU is a laggard or leader relative to its energy sector peers. Check out our latest analysis for Centrus Energy
What’s the catalyst for LEU’s sector growth?
The oil and gas sector has been negative 40% in the past five years, due to the oil price crash. Large energy businesses have slashed their growth expenditures by over 40% since the collapse, and reduced headcount by nearly half a million workers. However, recently the sector saw a reversal in the downturn, and over the past year, the industry turnaround led to growth of 3.71%, though still underperforming the wider US stock market. LEU lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means LEU may be trading cheaper than its peers.
Is LEU and the sector relatively cheap?
The energy sector’s PE is currently hovering around 20x, relatively similar to the rest of the US stock market PE of 22x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 9.36% on equities compared to the market’s 10.06%, potentially illustrative of a turnaround. Since LEU’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge LEU’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? LEU recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto LEU as part of your portfolio. However, if you’re relatively concentrated in oil and gas, you may want to value LEU based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If LEU has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the oil and gas industry. Before you make a decision on the stock, take a look at LEU’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Centrus Energy’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other energy stocks instead? Use our free playform to see my list of over 300 other oil and gas companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
