Energy Solutions (ES)

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Cleaning Up With EnergySolutions

EnergySolutions (ES: NYSE)
By Credit Suisse ($27.56, Dec. 31, 2007)

WE INITIATE COVERAGE of EnergySolutions with an Outperform rating, as we believe it offers investors a unique opportunity to capitalize on the vast amount of dollars required to clean up nuclear waste.

EnergySolutions has become one of the leading government and commercial contractors through a host of acquisitions. Today, EnergySolutions stands as the only company with a vertically integrated service offering reflecting its unique disposal capabilities providing a competitive edge, strong recurring free cash flow, and above-average financial returns.
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Nuclear cleanup efforts worldwide are massive. EnergySolutions is well positioned to benefit from a number of growth drivers, including: (1) estimated Department of Energy spending of $55 billion between 2008 and 2012 for decontamination and decommissioning (D&D) of nuclear weapons facilities; (2) projected U.K. spending of $25 billion over the next five years to clean up its nuclear power plants; (3) license stewardship estimated to be a $3 billion opportunity accelerating D&D of nuclear power plants; and (4) another $1 billion opportunity for large components removal.

The potential for nuclear new generation is driving increased pressure to deal with the growing amount of nuclear waste while accelerating existing D&D efforts. Last, as we increase our reliance on nuclear power gen., cleanup efforts will multiply, albeit as a longer-term opportunity for EnergySolutions.

We are projecting 2007 and 2008 earnings per share of 62 cents and 71 cents. For valuation, we use a 13 times enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA) multiple on our 2011 estimate discounted back, which suggests a $32 price target.

With 16% upside potential, we initiate coverage with an Outperform rating.

-- Jamie Cook, CFA
-- Chase Becker