B&W and Denham partner to convert coal plants for data center power

Babcock & Wilcox (B&W) has announced a strategic partnership with Denham Capital to convert coal-fired power plants to natural gas, addressing the significant and immediate power demands of U.S. and European data centers, which face an estimated 45-gigawatt deficit by 2028. While this initiative taps into a critical market need and leverages existing infrastructure for faster deployment, B&W faces considerable financial headwinds, including a $517 million debt burden, negative free cash flow, and recent Q2 2025 earnings that significantly missed expectations, though DA Davidson has raised its price target citing the company's capital improvement efforts.

Analysis

Babcock & Wilcox (NYSE:BW) has entered a strategic partnership with Denham Capital to capitalize on the urgent power demand from data centers, which are projected to create a 45-gigawatt power deficit in the U.S. between 2025 and 2028. The strategy to convert existing coal-fired plants to natural gas is positioned to circumvent the typical five-year interconnection delays for new projects, offering a timely solution. However, this significant market opportunity is starkly contrasted by B&W's precarious financial position, characterized by a substantial debt burden of $517 million, negative free cash flow, and a high EBITDA multiple of 47.7x. The company's operational challenges were further underscored by a significant second-quarter 2025 earnings miss, with an EPS of -$0.63 versus an expected -$0.07 and revenue of $144.1 million falling well short of the $182.07 million forecast. Despite these headwinds, recent actions to improve its capital position, such as extending debt maturities, prompted a price target increase from DA Davidson to $1.50 and allowed the company to regain NYSE listing compliance, indicating that strategic financial management is being recognized amidst poor operating results.

Key Decisions for Investors

• Investors must weigh the substantial long-term growth opportunity from powering data centers against the company's immediate and significant financial risks, including its $517 million debt load, negative free cash flow, and recent major earnings miss.
• The success of the partnership with Denham Capital is paramount; any investment thesis should be contingent on monitoring for tangible progress in securing and financing coal-to-gas conversion projects, as this is the primary de-risking catalyst.
• Given the high 47.7x EBITDA multiple and weak fundamentals, the stock appears speculatively valued on future potential, meaning investors should scrutinize any further balance sheet improvements or divestitures as key potential drivers for a re-rating.