Cameco CCJ shares have appreciated 28.4% in the past month, outpacing the industry’s return of 9.3%. In comparison, the Zacks Basic Materials sector and the S&P 500 have gained 2.4% and 3.9%, respectively. Recent developments in the nuclear energy sector have sparked the interest in Cameco. Being one of the world's leading uranium producers with operations spanning the entire nuclear fuel cycle from exploration to fuel services, CCJ is well-positioned to benefit from these trends.
CCJ's 1-Month Performance
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The CCJ stock is currently trading above its 50-day and 200-day moving averages, indicating strong investor confidence and a favorable market outlook.
CCJ Shares Trade Above 50-Day & 200-Day SMA
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The CCJ stock closed at $51.71 yesterday, 8% below its 52-week high of $56.24 and 46% above its 52-week low of $35.43.
Factors Driving Cameco
Global Focus on Nuclear Energy Powers CCJ
An increasing population, a growing focus on electrification and decarbonization, and concerns about energy security and affordability has led to a worldwide push to triple nuclear power capacity by 2050. Uranium is the fuel for carbon-free, emission-free, baseload nuclear power, one of the cleanest forms of energy in the world.
Uranium prices have picked up lately to $83 per pound, the highest in two months. A series of stimulus packages in China and its move to increase sustainable energy development with nuclear energy have boosted the demand for uranium. China is building 28 nuclear reactors. Interest in nuclear power also gained momentum in the United States.
In September, Constellation Energy CEG signed a long-term power supply agreement with Microsoft Corporation MSFT. To meet Microsoft’s 20-year clean energy requirements, Constellation Energy will restart the nuclear-powered Three Mile Island Unit 1, which was idle for five years for economic reasons. Oracle is designing a data center powered by three small modular reactors. A group of 14 global banks and financial institutions have also pledged support to triple nuclear energy by 2050.
Underinvestment in uranium mining operations over the past decade has led to a structural deficit between global production and uranium requirements. This is anticipated to widen. As existing mines deplete resources, new production will be needed to meet existing and future demand. Supply pressure and solid demand fundamentals point to higher sustained uranium prices in the future, which bodes well for Cameco.
CCJ’s Portfolio Across the Nuclear Fuel Cycle to Aid Growth
Cameco is the second-largest uranium producer, accounting for 16% of global production in 2023. The company’s operations span the nuclear fuel cycle from exploration to fuel services, which include uranium production, refining, uranium oxide (UO2), and uranium hexafluoride (UF6) conversion services and CANDU fuel manufacturing for heavy water reactors.
CCJ has a 69.8% stake in the McArthur River mine and 83% in the Key Lake mill, which are the world's largest high-grade uranium mine and mill. The mine has proven and probable reserves of 265.6 million pounds of uranium, with an average grade of 6.72%. It is expected to produce 18 million pounds of uranium in 2024 (on a 100% basis).
Cameco has a 54.5% interest in Cigar Lake, which is the world’s highest-grade uranium mine. It has proven and probable reserves of 113.8 million (CCJ’s share). The mine is expected to produce 18 million pounds (on a 100% basis) in 2024.
Cameco also owns a 40% stake in Inkai, which has 104.7 million pounds of proven and probable reserves, with an average grade of 0.04%.
The company’s exploration properties, such as the Cree Extension-Millennium project in Canada, and Yeelirrie and Kintyre in Australia, also have the potential to boost its resources.
Cameco’s fuel service business provides conversion and CANDU fuel fabrication. It has about 21% of the world’s primary conversion capacity, with total sales commitments to supply more than 75 million kilograms of UF6.
In 2023, CCJ acquired a 49% interest in Westinghouse and enhanced the ability to meet customers’ growing demand for reliable and secure nuclear fuel supplies, services and technologies. Westinghouse is a leading provider of highly technical aftermarket products and services to commercial nuclear power utilities and government agencies.
Cameco also has a 49% ownership interest in Global Laser Enrichment LLC. The latter is testing a technology demonstration program, which, if successful, will offer a variety of advantages to the global nuclear energy sector.ial nuclear power utilities and government agencies.
Long-Term Contracts Ensure Stability for Cameco
CCJ’s contract portfolio spans more than a decade. In the uranium segment, for the next five years, the company has contracts in place for average annual deliveries of 29 million pounds of uranium per year. These long-term contracts provide some protection in case uranium prices decline.
CCJ’s Solid Balance Sheet Enables Investment in Growth
As of June 30, 2024, Cameco had $362 million in cash and cash equivalents, $1.4 billion in total debt, and a $1.0 billion undrawn credit facility. The company’s total debt to total capital was 0.18 as of June 30, 2024, lower than the industry’s 0.29.
CCJ plans to maintain the financial strength and flexibility necessary to execute its strategy of boosting production to capitalize on market opportunities. Work is underway to extend the mine life at Cigar Lake to 2036. Cameco is also advancing on increasing production at McArthur River/Key Lake from 18 million pounds to its licensed annual capacity of 25 million pounds (100% basis).
Supply-Chain Issues at Inkai, Higher Taxes to Ail Cameco
Inkai is facing procurement and supply-chain issues, mainly related to sulfuric acid deliveries. The company stated that the 2024 production target of 8.3 million pounds of uranium (100% basis) is tentative and dependent on the receipt of sufficient volumes of sulfuric acid. Ongoing transportation challenges, construction delays and inflationary production costs are other headwinds. The geopolitical situation continues to cause transportation risks in the region.
Kazakhstan changed the Mineral Extraction Tax (MET) for uranium, effective 2025. Per the new code, the new MET rate will increase from 6% to 9% in 2025. From 2026 onward, it will be based on production and spot prices.
Downward Estimate Revision Trend for CCJ
In 2024, the company expects the average unit cost of production at McArthur River/Key Lake to be higher than the average unit life of mine operating costs as it ramps up production. The average unit cost of sales in the fuel services segment is expected between $25.50 and $26.50 per kgU (previously $24.50-$25.50 per kgU) due to the lower production expectations for UF6 at the Port Hope conversion facility.
Westinghouse is expected to generate a net loss of $170-$230 million in 2024 due to the impacts of the purchase accounting, which requires the revaluation of Westinghouse’s inventory and other assets at the time of acquisition and the expensing of some non-operating acquisition-related transition costs. Cameco will continue to incur care and maintenance costs for the ongoing curtailment of its tier-two assets, which are expected between $50 million and $60 million.
To reflect these headwinds, the Zacks Consensus Estimate for CCJ’s earnings in fiscal 2024 and 2025 has moved south over the past 60 days, as shown in the chart below.
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Despite the downgrades, earnings estimates for fiscal 2024 suggest year-over-year growth of 45.6%. The same for fiscal 2025 indicates a year-over-year rise of 95.4%.
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Cameco Offers Industry-Leading Returns
CCJ’s return on equity — a profitability measure of how prudently the company utilizes its shareholders’ funds — is 5.63%, higher than the industry’s 2.06%.
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Its return on assets is at 3.68%, ahead of the industry’s 1.05%, indicating that the company has been utilizing its assets efficiently to generate returns.
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Cameco Offers Lofty Valuation
The Cameco stock is trading at a forward price-to-sales ratio of 9.27 compared with the industry’s 1.21. It is above its three-year median of 6.76.
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The company is, however, cheaper than peer Uranium Energy’s UEC price-to-sales ratio of 31.77.
Final Take on the CCJ Stock
Backed by its strong balance sheet, Cameco is making investments to aid growth. Geopolitical events, energy security concerns and the global focus on the climate crisis amid rising low-carbon energy demand have created tailwinds for the nuclear power industry. Given CCJ’s low-cost and high-grade assets, and diversified portfolio spanning the nuclear fuel cycle, it is well-poised to capitalize on these trends. The company’s long-term contracts provide some insulation during depressed spot uranium prices. Investors holding CCJ shares should continue to retain the stock in their portfolios to benefit from the solid long-term fundamentals.
However, considering the ongoing challenges at Inkai, the impacts of the new MET imposed by the Kazakhstan government and its premium valuation, new investors can wait for a better entry point.
Cameco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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