Nuclear energy as a viable solution to the climate crisis has finally shaken off its previous bad press in recent years and is starting to get a lot of attention from investors. And because nuclear energy can’t necessarily be developed without uranium, which is one of the reasons why Cameco Inc. (TSX:CCO) has seen its share price rise 23 per cent this year.
As one of the world’s leading suppliers of uranium, Cameco has the world’s largest high-grade reserves and low-cost operations. Most importantly, the fundamentals of nuclear energy have never been better.
Over the past few years, there has been widespread consensus among governments that nuclear energy is an essential source of energy if climate goals are to be met. In response to the net-zero emissions targets that have been proposed by many countries around the world, nuclear energy is increasingly being recognized as a key solution to achieving these goals. In fact, 28 countries have signed an international declaration calling for a tripling of nuclear energy capacity by 2050.
And on the supply side, years of under-investment by the mining industry means that the supply of uranium is quite low. This means that supply shortages will continue to push up the price of uranium while demand surges. This will favour Cameco in further increasing uranium production.
The financial results show that Cameco posted adjusted earnings before interest, taxes and depreciation (EBITDA) of C$345 million in the first quarter of 2024, an increase of 53 per cent over the same period of the previous year. Management has maintained its outlook for fiscal 2024, expecting revenues to be in the range of C$2.9 billion to C$3 billion. This implies a growth rate of between 12 per cent and 16 per cent.
Additionally, earnings per share (EPS) are expected to reach C$0.94 in 2024, a 20 per cent increase from the previous year, according to the company and analysts’ consensus estimates. Looking ahead, earnings growth is expected to accelerate over the next few years, reflecting the strong supply and demand outlook for nuclear energy.
Cameco shares have recently fallen 7% from their early June highs. This actually provides investors with a great opportunity to buy the stock. If you calculate Cameco’s price-to-earnings (P/E) ratio based on this year’s expected earnings per share, it’s already over 70 times, which is quite high. But if you use earnings estimates for 2025 and 2026, Cameco stock is in fact trading at a P/E of 39 times the consensus 2025 EPS estimate and 29 times the consensus 2026 EPS estimate.
Coupled with strong momentum and the significant upside that still exists, investors have reasons to believe that Cameco stock remains attractively valued. The company’s leadership position in the uranium industry is unassailable, and the current industry environment is very comfortable.
In short, Cameco stock should stay up through 2024, and the long-term outlook remains strong due to the strong momentum in the uranium/nuclear industry.
