Stock Talk Podcast Episode 299 Show Notes

You are listening to KeyStone’s Stock Talk Podcast – Episode 299

Great to chat with you again. This week I will kick off with Part 1 of an article on the What is the “Picks and Shovels” Approach to Investing in Stocks which was posted this week and includes briefs on Shopify, NVIDIA, and Argan Inc. Aaron answers a viewer question on entertainment giant The Walt Disney Company (DIS:NYSE). Brennan tackles Deere & Co. (DE:NYSE) which engages in the manufacture and distribution of various equipment worldwide. It has performed well post pandemic, but the momentum has slowed – he let’s you know his take on the valuations at present. Finally, Brett takes a look at the shift in US policy being away from renewables as the various inflation reduction act tax credits and incentives look to be changed and he take a look at the surging Nuclear segment after Trump signed an executive order to speed up the development of nuclear power with the intention to quadruple the countries nuclear power within 25 years. Brett narrows in on a Nuclear company we interview a couple month back Centrus Energy (LEU:NYSE) on the heals of my review of AtkinsRéalis Group Inc. (ATRL:TSX) in the segment last week.

Let’s get to the show – I welcome my cohost, Mr. Aaron Dunn, and the killer B’s, Brett and Brennan.

Poll Question

YSOT Deere & Co. (DE:NYSE) – Viewer Request

Deere & company engages in the manufacture and distribution of various equipment worldwide. The company operates through four segments: Production and Precision Agriculture, Small Agriculture and Turf, Construction and Forestry, and Financial Services.

The stock has performed very well since pre-pandemic, up over 210% since before the 2020 drop. And this was led by a significant inflection in net income, growing EPS with a CAGR of 15% from 2015-2019, but increasing this to 20% from 2019-2024.

Looking at the most recent quarter, Q2 2025, ended April 27, 2025:

• Revenue declined 16% to $12.8 million.
• Looking at the individual segments:
  • Production & Precision Ag business’s revenue was down 21% primarily due to lower shipment volumes with operating profit down 30%.
  • Small Ag & Turf revenue was down 6% as a result of lower shipment volumes. But operating income was up 1% due to lower production costs, lower warranty expenses and price realization.
  • Construction & Forestry revenue declined 23% due to lower shipment volumes, and operating income was down over 43%.
  • financial Services Net income was down about 1% – but it remains a small piece of the business.
• Net income for the quarter was down 24% to $1.8B and EPS was down 22% to $6.64.

Now the company updated its guidance which it previously provided in February, decreasing the bottom end of its net income from $5.0-$5.5B to $4.75-$5.5B…. which would be a decline of 21% from FY 2024… CLICK and this equates to a forward P/E multiple of about 26x. And if we look at the median P/E multiple over the past decade, the stock had typically traded at about 16x trailing earnings.

Looking at each segment, they are expecting each industry and segment’s revenue to be down, 15-20%….

Management indicating that increased interest rates and tariff impacts are leading to shifting market demand.

So at this point, the company is certainly facing headwinds and compared to its historical multiple it is trading at a premium at this point.

Now looking at the balance sheet, it remains quite levered with a trailing net debt to EBITDA multiple  of 6.1x. But we can see that the company’s share count continues to decline, which is positive for EPS, and is why we have seen EPS decline at a slower rate than net income in the last few quarters

Looking at some operational updates, the company acquired Sentera last Friday on May 23rd, a company with industry-leading cameras which are compatible with most major drone platforms that enable farmers and crop scouts to quickly and efficiently capture high-resolution data at scale.

The company also announced in April that it is investing $13.5M to expand its remanufacturing facility in Missouri…

This is a part of the company’s continued investment in its “smart industrial strategy,” highlighting a planned $20 billion investment in the U.S. over the next decade for product development, technology, and manufacturing.

Conclusion

• Near term headwinds are facing the business – with revenue of all segments expected to be down this year.
• The company has a good track record of producing mid-teens EPS growth – increasing it to 20% from 2019-to-2024.
• The balance sheet is quite levered with a trailing net debt-to-EBITDA multiple of >6x
• The company is certainly facing headwinds and compared to its historical multiple it is trading at a premium at this point. So, at this point I would be a bit hesitant to build a position in the stock and believe it is closer to fair value in my opinion.

I do not think it is a bad business, they have grown their dividend at a 5-year growth rate of 15% with a payout of just 30%… this could increase as earnings may decline in FY 2025.. but the business has been buying back shares, and has a smart industrial road map for continued investment… But again, I think I would be hesitant entering the stock at this point in time.

YSOT Centrus Energy (LEU:NYSE)

Last week we talked about the shift in US policy being away from renewables as the various inflation reduction act tax credits and incentives look to be changed. Whether or not this happens is still up in the air, but the renewable IRA incentives being removed have passed the House; whether or not it sticks in that form through the Senate is unclear at the time of recording. However, the winner of recent policy changes looks to be nuclear. So, a couple of days after solar stocks plummeted, nuclear stocks surged across the board.

As Trump signed an executive order to speed up the development of nuclear power with the intention to quadruple the country’s nuclear power within 25 years. The shift in policy is looking at an overhaul of the Nuclear Regulatory Commision, a reduced time of regulatory licenses decisions for construction to 18 months, re-evaluated radiation limits, standardized applications for microreactors, amongst many other things.

Nuclear stocks surged on Friday on the order:

Uranium Energy Corp. UEC a uranium exploration and processing company up 25%

Oklo OKLO:NYSE a small modular nuclear reactor company  up 23%

Cameco CCJ:NYSE a uranium product up 11.1%

Just to name a few, but effectively the entire industry is up.

And the company I want to focus on is Centrus Energy LEU:NYSE, up 21.6%

Focusing on Centrus solely because I find the company interesting as its history of being part of the US government prior to IPO, it is quite niche with only a handful of competitors which are non-public, and it has some long-term prospects, and we talked to them in person at a conference this March.

Centrus Energy is a supplier of nuclear fuel and services. The company was spun out of a US government organization in 1998.  The company produces High-Assay low-enriched Uranium or HALEU. It is the only company within the US with US supply chain and US technology to enrich uranium. The company breaks its operations into 2 segments: a LEU broker business and its CTS segment, which is enrichment and Technical services.

So, an interesting positioning given the de-globalization policy we’ve been seeing.

The stock is trading at $113.29 a share and has a 1.93 billion market cap. The stock has performed great, not just due to the recent executive order but also over the past year up 122%.

Shifting to the financials for Q1 2025, ending march 31,

The company had revenue of $73.1 million up 67% year-over-year

Of which the LEU segment was $51.3 million up 117% .

And the CTS segment was up 8% to $21.8 million.

Gross profit substantially increased to $32.9 million from $4.3 million.

Net Income came in at $27.2 million compared to a loss of $6.1 million. Or $1.60 per share compared to a loss of $0.38 per share.

I will mention that the company has significant quarterly variations due to contract timing, primarily in the LEU segment, so while it’s good to see high growth percentages, the comparison was a generally lower year. To view the company you need to look much more at the trends over individual quarters.

We have seen a general trend of improvement over the past 8 years or so on both the revenue and EPS side. EPS has been more variable over time as expected, but has generally trended positively.

The company has Cash of $653 million.

Has a debt of $457.6 million.

Resulting in a net cash position of $195.4 million, so great to see that.

As well, I will note it does have pension and post-retirement liabilities of $76.4 million. But overall a strong balance sheet.

As the company does rely on long term contracts in its LEU segment we do have a backlog as well to look at the forward trend prospects. The company has $3.8 billion in revenue backlog until 2040, of which $2.8 billion is within the LEU segment. If we do see a proliferation of commercial nuclear power in the US, it should show up in the backlog in the coming years and decades.

On a trailing basis, the company is trading at a PE 17.7 times.

An EV/EBITDA of 16.6 times.

So, not exactly cheap after the surge in price over the past year, but the prospects have improved in the years to come..

Overall, the company does look expensive at this time. But given the volatile nature of the stock due to speculation, there is periods of time it may become more appealing to investors. The long-term speculative prospects are appealing, given the niche positioning within the US enrichment market having effectively no national competitors. If we do see a sustained shift of commercial and government demand for nuclear power the company could be very appealing. Overall, this is a company we will continue to look more into as both the company and environment develop and generally monitor for a better risk reward trade-off.