Cameco CCJ is trading at a forward price-to-sales ratio of 9.91, significantly higher than the industry’s 1.33. It is also above its three-year median of 6.77.
CCJ’s Value Score of F suggests that the stock is not so cheap and indicates a stretched valuation at this moment.
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Year to date, Cameco shares have gained 30.9% against the industry’s 13.2% decline. Meanwhile, the broader Zacks Basic Materials sector has declined 3.3%, while the S&P 500 has climbed 27.4%.
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Cameco’s peers, Uranium Energy Corp. UEC, Denison Mines Corp. DNN and NexGen Energy NXE, have gained 26.7%, 25.4% and 14.1%, respectively.
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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.
Revenues improved 23% year over year to $528 million (CAD 721 million) in the third quarter of 2024 on higher sales volumes. The top-line figure fell short of the Zacks Consensus Estimate of $551 million. Cameco incurred a loss of 1 cent per share, far short of the Zacks Consensus Estimate of earnings of 26 cents.
The weaker-than-expected results were attributed to normal quarterly variations in sales volumes, delayed sales at joint venture Inkai due to the ongoing transportation challenges, and the impacts of purchase accounting for Westinghouse.
Cameco’s share of uranium production was 4.3 million pounds in the July-September period, 43% higher year over year. It sold 7.3 million pounds of uranium compared with 7 million pounds in the third quarter of 2023. The average realized uranium price rose 14% year over year to $60.18 per pound. Higher sales volumes and prices led to a 23% improvement in uranium revenues. The segment’s gross profit rose 11%, and adjusted EBITDA was up 7%.
In Fuel Services, production volume surged 60% year over year to 3.2 million kgUs and sales volume rallied 67% to 3.5 million kgUs. The Fuel Services segment witnessed a 40% rise in revenues, aided by higher volumes, partially offset by a 13% decline in average realized prices.
To reflect the consistent run rate at the Key Lake mill, the uranium production outlook for 2024 has been raised to 37 million pounds. Of this, Cameco’s share will be 23.1 million pounds compared with 17.6 million pounds in 2023.
However, to reflect the ongoing acid supply challenges in Kazakhstan, the production outlook for joint venture Inkai has been lowered by 0.6 million to 7.7 million pounds (on a 100% basis) of uranium.
At Port Hope, annual UF6 (Uranium hexafluoride) production is projected between 11,000 and 11,500 tons in 2024. This is lower than the previous expectation of 12,000 tons due to temporary operational issues in the first half of 2024. The 2024 production expectation for fuel services (which includes UF6 conversion, UO2, and heavy water reactor fuel bundles) is projected between 13.5 million and 14.5 million kgU of combined fuel services products.
Cameco maintains expectations of uranium deliveries at 32-34 million pounds for 2024 and revenues of $3.01-$3.16 billion. Its share of Westinghouse’s 2024 adjusted EBITDA is expected to be $460-$530 million.
The CCJ stock has seen downward earnings estimate activity for both fiscal 2024 and fiscal 2025 over the past 60 days, as seen in the chart below.
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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.
Kazakhstan changed the Mineral Extraction Tax (MET) for uranium, effective 2025. Per the new code, the MET rate will increase from 6% to 9% in 2025. From 2026 onward, the tax will be based on production and spot prices.
CCJ’s return on equity — a profitability measure of how prudently the company utilizes its shareholders’ funds — is 3.33%, higher than the industry’s 1.65%.
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Cameco hiked its annual dividend by 33% to 16 cents per share for 2024. The company is planning to implement a dividend growth plan of at least 4 cents per share each year through 2026, subject to its board’s approval. This will likely take its annual dividend to 24 cents per share by 2026, doubling from the 2023 payout.
An increasing population, a growing focus on electrification and decarbonization, and concerns about energy security and affordability have led to a worldwide push to triple nuclear power capacity by 2050. 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.
Cameco is the second-largest uranium producer, accounting for 16% of 2023 global production. Through 2024-2028, the company has contracts for average annual deliveries of 29 million pounds of uranium per year. These offer CCJ a buffer against potential declines in uranium prices.
At the end of the quarter, Cameco had C$197 million ($141 million) in cash and cash equivalents, C$1.3 billion ($0.9 billion) in long-term debt, and a C$1-billion ($0.7 billion) undrawn credit facility. Work is underway to extend the mine life at Cigar Lake to 2036. Cameco is also increasing production at McArthur River and Key Lake from 18 million pounds to its licensed annual capacity of 25 million pounds (100% basis).
CCJ’s financial strength and flexibility position it well to boost production and capitalize on market opportunities. 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, new investors can wait for a better entry point, considering the ongoing challenges at Inkai, downward earnings estimate revision, the impacts of the new MET imposed by the Kazakhstan government and CCJ’s premium valuation.
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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