Cameco (NYSE:CCJ) is a large Canadian producer and refiner of Uranium. With shares of energy businesses surging in response to growing power demand from data centers, EVs and other emerging technologies, CCJ has almost doubled in the past year. Is Cameco stock a buy now, or have prices gone too high to offer value to investors?
Cameco’s JV Provides Uranium Access
Cameco has established an interesting and unique position for itself in the global uranium supply chain. In addition to being the world’s largest publicly traded uranium mining business, Cameco refines the radioactive element and even creates fuel rods for nuclear reactors. Capping off its vertical integration is a 49 percent stake it has acquired in Westinghouse Electric, a business that actively builds nuclear reactors. As such, Cameco has successfully parlayed its powerful mining position into an end-to-end play on the nuclear power industry.
Cameco operates two large mine sites in Canada, namely the Cigar Lake and McArthur River/Key Lake sites. Cameco’s licenses for these sites extend through 2031 and 2043, respectively. Together, Cameco’s share of uranium concentrate from these two sites is expected to reach about 22.4 million pounds this year. Both of these sites are large, high-grade uranium mines that give Cameco long-term exposure to particularly rich deposits.
Cameco also has access to the uranium production of Kazakhstan through Inkai, a joint venture in which 40 percent in owned by Cameco and 60 percent is owned by Kazatomprom. This year, Inkai is expected to produce 8.3 million pounds of uranium concentrate, of which Cameco’s share is about 3.7 million pounds. With Kazakhstan acting as the largest uranium producer in the world since 2009 and now accounting for about 40 percent of global production, Cameco’s partnership with the majority state-owned Kazatomprom and its presence in the country are both deeply positive for the business.
A final interesting point about Cameco’s market position is its potential to quickly establish US production. Although they have been shuttered since 2016, Cameco has two fully-owned mining sites in Nebraska and Wyoming. If Cameco decided to begin operations at those mines again, it would quickly establish a large production presence for itself in the United States, which is actively encouraging more domestic uranium production.
Cameco’s Performance and Expected Growth
Cameco is already seeing benefits from growing uranium demand and rising prices. In Q2, for instance, both net and adjusted earnings were up considerably from the prior-year period, with net earnings reaching $321 million. Pre-tax earnings in the uranium segment were up 46 percent year-over-year, accompanied by a 36 percent increase in earnings from fuel services. Cameco’s share of Westinghouse’s earnings also reached $126 million against a net loss in the year-ago period. All told, net margin for the trailing 12-month period has reached 15.0 percent.
When it comes to growth, Cameco is likely to be a long-term beneficiary of the growing disparity between supply and demand in electric power generation. In the US alone, demand for electricity is expected to rise by 25 percent by 2030 and 78 percent by 2050, requiring large increases in power generation capacity.
Alongside other technologies like wind, solar and hydroelectric, nuclear power could be a leading contender in providing the additional capacity needed to maintain an increasingly power-hungry economy. About 60 new reactors are expected to be built globally by 2030, and total nuclear generating capacity could triple by 2050. With its heavy exposure to the overall nuclear energy supply chain, Cameco is extremely well-positioned to take advantage of this global growth.
Cumulatively, these trends are expected to allow Cameco to grow its earnings per share at a compounded rate of about 70 percent over the coming 3-5 years. Even if this projection proves to be overly optimistic, Cameco appears to be set up for very attractive long-term growth as demand for electricity grows and nuclear power experiences a resurgence.
Is Cameco’s High Valuation Tenable?
One of the biggest open questions about Cameco is whether it can sustain its high valuation. With prices for energy-related stocks surging, shares of CCJ now trade at over 120 times trailing 12-month earnings, 18.2 times sales and 77.9 times operating cash flow. These metrics are extremely high, particularly for a commodity business.
Analysts, however, tend to believe that Cameco’s high multiples are basically justified. The range of price targets for CCJ runs from a low of $78.88 to a high of $109.02. At the average of $93.15, Cameco would see a downside of a little less than 13 percent from its most recent price of $106.91. Even so, the entire range of analyst forecasts assumes significantly high multiples to earnings and sales supported by future growth.
Is Cameco a Buy?
Although Cameco’s valuation is quite high, there’s a great deal to like about the business and its long-term prospects. With nuclear energy set to experience a revival that could keep going for the next two decades or more, Cameco could be set up for many years of growth as a leading supplier of nuclear fuel. Moreover, through its Westinghouse investment, Cameco also stands to benefit directly from the buildout of new nuclear reactors.
Cameco also has significant advantages over other, more speculative nuclear energy businesses that are surging on the basis of AI demand. Oklo, for instance, has attracted massive investor enthusiasm as a startup that plans to supply nuclear power to AI data centers. That business has reached a market cap of almost $20 billion despite never having generated revenue. Cameco’s value, by contrast, is backed up by a very strong existing business that is already profitable and likely to deliver handsome growth over long periods of time.
All told, Cameco could still be a good buy today in spite of its elevated prices. While its valuation introduces the possibility of downward volatility in the event of an AI selloff or a general economic downturn, both Cameco’s business and the overall economic trends around it look quite appealing. As such, Cameco may be a case in which it makes sense to pay a premium price for what could prove to be an excellent long-term business.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.