USU: USEC Inc. Message Board

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Non-Tech : USU: USEC Inc.

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From: Dennis Roth	2/28/2008 8:38:14 AM
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USEC Inc. (USU): Lowering price target following ACP update; stay on the sidelines - Goldman Sachs - February 28, 2008 What's changed USEC reported 4Q2007 fully-diluted EPS of $0.13 per share (vs. GS of $0.12 and consensus of $0.13). However, we are lowering our price target to $6.50 from $10 on the back of significantly higher ACP (American Centrifuge Project) costs. Management’s updated cost estimate rose to $3.5bn – materially higher than our previous $3 billion estimate and the company’s September estimate of $2.3bn plus 15%-20% contingency). We expect USEC to provide additional detail following completion of the full project budget during 2Q2008. Implications We remain constructive on the long-term fundamentals of the nuclear enrichment industry, but company specific risks keep us on the sidelines. In our view, ACP execution risks have significantly increased, more than offsetting an improved outlook for project financing following DOE loan guarantee authorizations in the Federal Omnibus Spending Bill. We are updating our ACP project cost estimate to $4 billion, though we lack a lot of detail on the cost structure. Our cost estimate remains above management forecasts, as we are concerned further raw material pressure and tight engineering capacity could drive additional cost overruns. Valuation We are lowering our 12-month price target to $6.50 (from $10), based on scenario analysis and DCF; supported by normalized earnings. Our valuation assumes no conversion of CVT debt given the $11.96 strike price. Key risks (1) Valuation remains highly dependent on ACP performance/cost/timing and could differ significantly from our updated expectations, driving both upside and downside risk; (2) Early termination of the Russian Suspension Agreement; (3) Competitor capacity additions.

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