Key Points
Fluor announced it will convert 15 million of its Class B shares in NuScale into Class A shares.
Once this happens, Fluor will be able to begin selling the Class A shares on the stock market.
Investors expect this is precisely what Fluor intends.
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Shares of NuScale Power (NYSE: SMR), the nuclear reactor-builder, tumbled 11.7% through 11:50 a.m. ET Friday — not for any fault of its own, mind you.
Instead, you can blame it all on Fluor (NYSE: FLR), which has decided to unload a big chunk of the NuScale shares it owns.
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Fluor selling out?
Fluor reported poor earnings this morning, you see — with sales down 6% year over year and adjusted profit cut nearly in half. More importantly to NuScale investors, though, is the fact that Fluor wants to convert 15 million of the Class B NuScale shares it owns to Class A shares… and then sell them.
And why?
As Fluor pointed out, gains in the value of its NuScale shares contributed $3.2 billion in “pre-tax mark-to-market gains” on its profit in Q2 — but the roller-coaster ride that is NuScale is also contributing to “volatility” in Fluor’s results, and forcing Fluor management to make “recurring fair value measurements” as it tracks NuScale’s ups and downs.
Is it time to sell NuScale stock?
To fix this, Fluor said in its post-earnings conference call, the company will later this month convert 15 million NuScale Class B shares into Class A shares. The implication is that Fluor might then sell these A shares for cash. More than just simplifying accounting, this would return value to shareholders, says Fluor, by letting them cash in on NuScale’s remarkable high-flying stock.
It would also, however, threaten to flood the market with cheap NuScale shares, depressing the share price. This, in a nutshell, is what’s worrying investors today. This is the reason they’re selling off NuScale stock.
With NuScale stock up fivefold over the past year, and this new risk on the horizon, it looks like a good time to sell.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends NuScale Power. The Motley Fool has a disclosure policy.
