Cameco Corporation (CCJ) Is a Trending Stock: Facts to Know Before Betting on It

Shares of Cameco CCJ have gained 6% since it reported third-quarter 2024 results on Nov. 6. CCJ incurred a loss of 1 cent in the quarter against earnings of 24 cents in the year-ago quarter. However, revenues improved 23% year over year. Cameco missed the Zacks Consensus Estimate for revenues and earnings.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

The CCJ stock closed at $54.41 yesterday, 7% below its 52-week high of $54.41 and 53.6% above its 52-week low of $35.43. Year to date, Cameco shares have gained 26.9% against the industry’s 15.9% decline. Meanwhile, the broader Zacks Basic Materials sector has moved down 15.9%, while the S&P 500 has climbed 26%.

Cameco’s YTD Performance

Its peer NexGen Energy NXE has risen 8.6% year to date, while Energy Fuels UUUU has declined 6.7%.

CCJ Shares Trade Above 50-Day & 200-Day SMA

The CCJ stock is currently trading above its 50-day and 200-day moving averages, indicating strong investor confidence and a favorable market outlook.

Let us delve deeper into Cameco’s third-quarter results and long-term prospects before assessing whether to buy, hold or sell the stock.

Decoding Cameco’s Q3 Results

Revenues improved 23% year over year to $528 million (CAD 721 million) on higher sales volumes but fell short of the Zacks Consensus Estimate of $551 million. The company incurred a loss of 1 cent per share in the quarter, missing 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 produced 4.3 million pounds of uranium in the July-September period, 43% higher than the year-ago quarter. 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.

CCJ Plans to Double Dividend Payout by 2026

Cameco hiked its annual dividend by 33% to 16 cents per share. 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.

Cameco’s Solid Balance Sheet Enables Growth Investment

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.

CCJ plans to maintain the financial strength and flexibility necessary to boost production and capitalize on market opportunities. Work is underway to extend the mine life at the 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).

Inkai Affects Cameco’s Projected Production Numbers

To reflect the consistent run rate at the Key Lake mill, the uranium production outlook for 2024 has been raised to 37.0 million pounds. Of this, Cameco’s share will be 23.1 million pounds, higher than the previous expectation of 22.4 million pounds for the year. This suggests improvement from Cameco’s share of 17.6 million pounds of uranium production reported in 2023.

However, 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 due to the ongoing acid supply challenges in Kazakhstan.

Cameco, however, maintained expectations of uranium deliveries at 32-34 million pounds for 2024. It guides 2024 revenues at $3.01-$3.16 billion (previously $2.85-$3 billion). Its share of Westinghouse’s 2024 adjusted EBITDA is expected between $460 million and $530 million compared with the earlier stated $445-$510 million.

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.

Earnings Estimates for CCJ Instill Optimism

The Zacks Consensus Estimate for CCJ’s earnings in fiscal 2024 has moved south over the past 60 days. This indicates the impacts of the challenges at Inkai. However, the estimate for fiscal 2025 has moved up in the same period, as shown in the chart below.

Despite the downgrades, earnings estimates for fiscal 2024 suggest year-over-year growth of 21%. The same for fiscal 2025 indicates a year-over-year rise of 132.5%.

Cameco Offers Industry-Leading Returns

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 2.07%.

Cameco’s Valuation Looks Stretched

The Cameco stock is trading at a forward price-to-sales ratio of 9.67 compared with the industry’s 1.39. It is above its three-year median of 6.76.

The company is, however, cheaper than peer Uranium Energy’s UEC price-to-sales ratio of 35.57.

Cameco to Ride on Global Focus on Nuclear Energy

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. It 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.

Should You Buy CCJ Stock Now?

Even though Cameco’s earnings were lower than expected in the third quarter, the earnings growth projections and its strategies to initiate a regular dividend growth plan hold promise. Supported by a strong balance sheet, the company is making investments to boost its capacity. 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, 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.

Zacks Investment Research

Nuclear energy stocks have become a Wall Street darling this year as the artificial intelligence (AI) boom spreads, leading to Big Tech searching for ways to meet its growing power demand.

It should not come as a great shock then that AI helped power the S&P 500 Utilities index to all-time highs. This index is on track to outperform the S&P 500 equal-weighted index in 7 of the past 10 months, according to data compiled by Bloomberg.

In addition, Vistra , a nuclear power-related utility, recently surpassed Nvidia as the biggest gainer in the S&P 500 Index year to date.

Nuclear Decision

However, a Nov. 1 Federal Energy Regulatory Commission (FERC) decision sent nuclear stocks reeling.

It rejected a deal that would have allowed an Amazon.com data center to use more power from an adjacent nuclear power plant - the Susquehanna nuclear facility owned by Talen Energy . FERC cited concerns about grid reliability and energy affordability.

Amazon paid Talen $650 million for a data center facility adjacent to the nuclear plant, aiming to take the reactor’s output directly. By doing this, Amazon would have avoided paying for transmission services.

If a data center is “behind the meter,” you aren’t relying on the grid and needn’t pay for it. Two grid operators, among others, didn’t like this special deal and brought the dispute before FERC. The ruling doesn’t prevent the initial 300 megawatt deal between Amazon and Talen from going ahead, but blocks its expansion.

And many copycat deals Big Tech had planned are dead.

What's Next for Nuclear?

However, once the shockwave passes, two realities will still be with us. First, Big Tech data center builders still want massive power supplies secured sooner rather than later. Second, they can afford to, and are willing to, pay a premium for power.

As long as the market’s main assumption is valid — that we are in the very early innings of an artificial intelligence-inspired data center boom — the companies that produce and deliver the power will still benefit quite a bit.

Instead of the type of power deal that Amazon sought, more deals will be structured similar to the pact between Microsoft and Constellation Energy . That’s the deal that is leading to the restarting of the Unit 1 reactor at Three Mile Island.

Microsoft’s data center will not be co-located with Three Mile Island. Instead, Microsoft will buy power from the grid at prevailing rates and pay the difference to Constellation — plus, Microsoft would have to pay the grid fees that Amazon hoped to avoid. Analysts estimated Microsoft will be paying Constellation about $100 per megawatt-hour, with transmission fees of about $30 on top of that.

In other words, Big Tech will pay up - a lot - for power. The apparent comfort with paying $100 or more in a $50 wholesale electricity market suggests generators could even offer a discount to cover transmission fees, etc. and still make large profits.

Thanks to artificial intelligence, digitalization and massive data-storage needs, data center power demand will nearly triple (surging 160%) by 2030. Those massive processing operations currently consume 1% to 2% of all power — but could account for 3% to 4% of electricity production by the end of the decade, says Goldman Sachs Research. S&P Global says that share could rise as high as 9%. And consultant McKinsey & Co. says it could hit 11% to 12% of power demand!

Apollo Global Management chief economist Torsten Sløk recently put into context the amount of power the AI boom is going to require. His data shows that we would have to add three New York Cities' worth of power to the grid by 2030 to meet the demand that is going to come from artificial intelligence.

That’s a lot of power!

Overall, here in the U.S., data needs on top of electrification of transport and a manufacturing revival sparked by “reshoring” efforts are forecast to at least double electricity demand growth in the next decade compared with the prior one.

Even the International Energy Agency (IEA) recently declared that, after the age of coal, and the age of oil, the world is now entering the age of electricity.

Nuclear Power Investments

Big Tech companies see nuclear power as a way to meet the demand for the power they need.

A great way to play the renaissance in nuclear power is through an exchange-traded fund (ETF) - the Range Nuclear Renaissance Index ETF , with a portfolio of 38 stocks.

I like the fact that the fund is spread broadly across all the nuclear-related segments. Among its top portfolio positions are: Constellation Energy , the largest nuclear operator, with more than three times more megawatt capacity than the next competitor; and Cameco , which has controlling ownership of the world’s largest high-grade reserves and low-cost operations, as well as significant investments across the nuclear fuel cycle, including ownership interests in Westinghouse Electric Company and Global Laser Enrichment.

NUKZ also has a major position in GE Vernova , which is heavily involved in the electric grid. I wrote about GEV previously as the best stock to buy in the Age of Electricity.

The fund also includes a number of companies involved with SMRs (small modular nuclear reactors), such as Oklo , NuScale Power , and Rolls Royce .

Finally, the ETF holds a number of engineering firms with exposure to the nuclear industry.

NUKZ began trading in January at $25, and is now trading around $45 - a nearly 80% gain! There’s plenty more to come. Buy NUKZ anywhere below $50.

On the date of publication, Tony Daltorio had a position in: NUKZ . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.