On today’s Breakouts report, there are 21 stocks on the positive breakouts list (stocks with positive price momentum), and 18 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock that is on the positive breakouts list – Cameco Corp. (CCO-T). Cameco is the second-best performing stock in S&P/TSX Energy Index with a year-to-date gain of 35 per cent. The share price has rallied 14 per cent over the past four trading sessions, closing at $41.53 on June 5, up from $36.29 on May 30. As a result, the positive price momentum may pause in the near-term in order to digest these rapid gains.
The stock has nine buy recommendations and one “sell” recommendation. The average target price implies a potential price return of 16 per cent over the next 12 months.
The stock is dual-listed, trading on the Toronto Stock Exchange under the ticker CCO, and on the New York Stock Exchange under the ticker CCJ.
A brief outline on Cameco is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Headquartered in Saskatoon, Cameco is one of the largest providers of nuclear fuel products worldwide. Cameco has mines in Saskatchewan - Cigar Lake (54.5 per cent ownership) and McArthur River/Key Lake (69.8 per cent/83 per cent ownerships). In addition, Cameco has a 40-per-cent ownership in the Inkai mine located in Kazakhstan. Camaco’s main buyers are utility companies who secure uranium through long-term contracts.
Investment thesis
- Focus on climate change with rising demand for carbon-free nuclear energy. The Canadian government targets net-zero carbon emissions by 2050.
- Industry leader as one of the world’s largest uranium producers.
- High-grade reserves, low-cost mines.
- Rising demand for uranium products from utility companies.
- Long-term contracts with deliveries typically starting more than two years later. Cameco has roughly 215 million pounds of uranium under long-term contracts.
- Ramping up production at McArthur River/Key Lake. In 2023, management is guiding to 20.3 million pounds of production (10.5 million pounds from McArthur River/Key Lake, 9.8 million pounds from Cigar Lake). In 2024, management forecasts 22.4 million pounds of production (12.6 million pounds from McArthur River/Key Lake, 9.8 million pounds from Cigar Lake).
- Robust earnings growth forecast. The consensus earnings per share estimate is 98 cents in 2023, jumping 79 per cent to $1.75 in 2024.
- Healthy balance sheet. At quarter-end, Cameco had $2.5-billion in cash, cash equivalents and short-term investments and $1 billion in long-term debt.
- Key potential risks to consider: 1) production delays; 2) volatility in uranium prices; and 3) economic weakness.
Industry news
On May 31, the U.S. Senate Committee on Environment & Public Works voted in favour of advancing nuclear energy legislation - the Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy (ADVANCE Act - in a 16-3 vote.
Chairman Tom Carper said in a news release, “The ADVANCE Act will help provide the Nuclear Regulatory Commission with the tools and resources needed to ensure that the United States remains a world leader in safely deploying nuclear energy for decades to come. I applaud Senators Capito and Whitehouse, as well as our colleagues on the Environment and Public Works Committee for advancing this bipartisan nuclear legislation today. In addition, I look forward to working with our Senate colleagues to pass this legislation and send it to the President’s desk.”
Quarterly earnings results
Before the market opened on April 28, the company reported better-than-expected first quarter financial results. In the uranium segment, production increased to 4.5 million pounds (Cameco’s share) up from 1. million pounds reported last year. Sales volume was 9.7 million pounds, up 64 per cent from 5.9 million pounds reported last year. The average realized price was US$45.14, up 4 per cent year-over-year.
Consolidated revenue totaled $687-million, up 73 per cent from $398-million reported last year. Adjusted earnings per share came in at 27 cents, topping the consensus estimate of 24 cents per share. Long-term contracts totaled approximately 52 million pounds of uranium equivalent in the first quarter and the long-term price edged higher to US$53 per pound from US$52 reported last year. The share price rallied 3 per cent that day on high volume.
In Remarks made on May 17 at Bank of America Securities Global Metals, Mining and Steel conference, Cameco’s chief financial officer Grant Isaac: “Here’s the cheat-sheet on what you have to look for as an investor to anticipate where demand is going in the uranium side of the nuclear fuel cycle…Utilities can delay, they can defer, but they ultimately cannot avoid buying this material... Between now and 2040, 2.2 billion pounds of uranium needs to be procured for the known reactor fleet, that includes the ones that are running, the ones that are being saved, the Diablo Canyon [nuclear plant], Byron [nuclear plant] and Dresden [generating station] units, the ones that are going through life extensions and the new builds, this does not include SMRs [small modular reactors], for example. That would all be upside to this demand case. So this is just the known reactor requirements - it’s big. This demand is coming to the market. So always keep an eye on that.”
Dividend policy
In Dec. 2022, the company paid its shareholders an annual dividend of 12 cents per share, equating to a current annualized yield of 0.3 per cent.
Analysts’ recommendations
Since the company released its first quarter earnings results, 10 analysts have issued research reports on the company, of which nine analysts have issued buy recommendations and one firm (ISS-EVA) issued a “sell” recommendation.
The 10 firms providing recent research coverage on the company are as follows in alphabetical order: ARC Independent Research, Canaccord Genuity, Cantor Fitzgerald, Eight Capital, ISS-EVA, Paradigm Capital, Raymond James, Scotiabank, TD Securities and William O’Neil & Co.
Revised recommendations
Since the company released its first quarter earnings results in April, two analysts made minor adjustments to their target prices.
- Raymond James’ Brian MacArthur raised his target price to $50 from $48 in April.
- TD’s Greg Barnes tweaked his target price to $51 from $50 last week.
Financial forecasts
The consensus earnings per share estimates are 98 cents for 2023, rising to $1.75 in 2024.
Next year’s earnings estimates have notably jumped higher in recent months. For instance, four months ago, the consensus earnings per share estimates were $1.06 for 2023 and $1.04 for the following year.
Valuation
The stock is commonly valued by analysts on a price-to-net asset value basis.
According to Bloomberg, the average 12-month target price is $48.10, suggesting the stock has 16 per cent upside potential over the next year.
Insider transaction activity
Quarter-to-date, there has not been any trading activity in the public markets reported by insiders.
Chart watch
Year-to-date, the share price is up 35 per cent, sharply outperforming the S&P/TSX Energy [sector] Index, which is down 4 per cent. Cameco is the second best performing stock in S&P/TSX Energy Index in 2023, slightly behind Parex Resources Inc. (PXT-T), which is up 39 per cent.
This month, Cameco’s share price broke above $40, a major resistance level. The next ceiling of resistance is around $45 and then $50. Looking at the downside, there is strong technical support around $40 (its previous resistance level). Failing that, there is support around $35, near its 200-day moving average (at $34.81).
ESG Risk Rating
According to risk provider Sustainalytics, the company has an ESG risk score of 27.9 as of April 13, 2023. A risk score between 20 and 30 reflects a “medium risk” rating.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
This report should not be considered an investment recommendation.