PESI’s Group Does Not Win ITDC—So Now What?
Today, the DOE announced a newly-formed joint venture named H2C won the vaunted ITDC (Integrated Tank Disposition Contract) for Hanford. PermaFix (PESI 0.00%↑ ) is NOT part of that group. The ITDC is estimated to be a $45B contract over the next 10 years. Obviously, PESI’s group winning this contract would be nothing but bullish. But what does it mean that they lost? And what, exactly, did they lose?
For beginners, let’s note that PESI would not have gotten anywhere near the $45B over 10 years. PESI was the “small business” of the losing bidding conglomerate. So, PESI would have gotten $100-250M per year in revenue. That’s quite nice, but keep in mind the margins would have been at 10-15% as ITDC is a service contract. So, this loss is actually much less material, from an earnings standpoint, than the recent secondary waste contract they landed with the DOE, which the company guided to be worth around $3.00/share of EPS once up and fully running (likely by EOY24 on a run rate basis).
Still, PESI has not officially “lost” that $100-250M opportunity. How can that be? Well, BWXT does have a small business as one of their subcontractors: Longenecker & Associates (L&A). L&A is a small business, but they focus on management consulting and strategic planning—they do not touch any waste. So, while it is entirely possible that L&A’s share of the business will be enough for H2C to fulfill its “small business” requirements under ITDC, the possibility still exists that PESI could earn some business under this ITDC contract with H2C.
Regardless, what is most important—as we have been saying all along at Breakout Investors—is that ITDC is awarded to someone! Why is that our key metric? Because it shows that DOE is clearly moving forward with the Hanford cleanup. Remember, the vitrification plant is in the final stages of being built (estimated to be finished in December 2023) and the ITDC is to actually oversee the operation of this massive facility. So, the awarding of ITDC means DOE remains on track to operate the vitrification plant in the relatively near future. And this is extremely positive for PESI.
The largest earnings opportunity for PESI is treating secondary waste from the vitrification plant. Obviously, the vitrification plant has to be up and running to create this secondary waste, which will then be sent exclusively to PESI for treatment. All in all, then, the fact that DOE is proceeding is bullish for PESI. H2C will soon be operating the vitrification plant at Hanford, sending the secondary waste created during that process to PESI, and PESI will then be earning (relative) massive amounts of revenue and EPS from this treatment. Again, on the last earnings call, they stated multiple times they believe $3.00/share EPS on the secondary waste is a reasonable estimate. And the stock closed today at $9.77/share—basically a 3.5x multiple.
In the bigger picture, the most important aspect of today’s announcement is that Hanford is very clearly moving forward. PESI will benefit enormously from the secondary waste created by the vitrification plant. It is also probable that PESI will benefit even more from supplementary treatment of waste through the Test Bed Initiative (TBI), which the DOE recently announced will proceed with a second (and perhaps final) testing phase before full-scale production. Plus, the non-Hanford-related PESI business has turned the corner since the Covid dip and should be profitable in 2023.
For current analysis and research on PESI please join us on the Breakout Investors Platform, specifically Aaron Warwick’s Room.