Uranium Energy (UEC) Gains As Market Dips: What You Should Know

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

Shares of Energy Fuels UUUU have fallen 4% since it reported third-quarter 2024 results on Oct. 31. UUUU incurred a loss of 7 cents in the quarter, in contrast to earnings of 7 cents in the year-ago quarter, as revenues plunged 63% year over year. The company missed the Zacks Consensus Estimates for revenues and earnings.

The UUUU stock closed at $6.05 on Nov. 6. Year to date, Energy Fuels’ shares have declined 15.9% against the industry’s 20% rise. It has also lagged the broader Zacks Basic Materials sector’s dip of 0.6% and against the S&P 500’s climb of 21.5%.

UUUU's YTD Performance

Is this dip in the stock a buying opportunity? To assess, it is important to look at the factors influencing the decline, review the third-quarter results and evaluate the stock’s investment potential.

Decoding Energy Fuels’ Q3 Results

The company’s revenues plunged 63% year over year to $4.05 million. It missed the Zacks Consensus Estimate of $5.1 million by a margin of 20.7%. The decline was attributed to lower uranium sales in the quarter. Energy Fuels sold 50,000 pounds of uranium concentrate for $80.00 per pound on the spot market. The company had sold 180,000 pounds to a major U.S. nuclear utility in the third quarter of 2023.

UUUU reported a quarterly loss of 7 cents per share in the third quarter of 2024, wider than the year-ago quarter’s loss of 2 cents. The consensus estimate for the quarter’s bottom line was pinned at a loss of 5 cents. The loss resulted from transaction and integration costs related to the Donald Project joint venture, acquisition of Base Resources and recurring operating expenses.

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

Key Developments in Q3 for UUUU

Energy Fuels signed a long-term sales contract with a U.S. nuclear utility, marking the fourth one in its portfolio. Under the contract, Energy Fuels expects to deliver 270,000-330,000 pounds of uranium between 2026 and 2027, possibly adding 180,000-220,000 pounds until 2029.

The company completed the final commissioning of the Phase 1 rare earth elements (REE) separation circuit at its White Mesa Mill in Utah and produced around 38 tons of 'on-spec' separated NdPr (neodymium-praseodymium). Samples have been sent for product qualification, and initial testing responses have been promising.

The separation circuit can generate up to 1,000 metric tons of separated NdPr per year, making it one of the world's largest commercial REE separation circuits, except for China.

Energy Fuels Lowers 2024 Outlook on Pinyon Concerns

Energy Fuels has temporarily paused ore shipments from its Pinyon mine in Arizona. This was due to concerns raised by the Navajo Nation regarding the transport of radioactive materials through the Navajo lands. Mining, however, has continued at Pinyon, with the mined ore being stockpiled at the mine site.

Factoring this setback, Energy Fuels expects to produce 150,000-200,000 pounds of finished uranium in 2024, lower than the prior stated 150,000-500,000 pounds.

With no contract sales scheduled for the remainder of the year, UUUU will look for opportunities to sell uranium on the spot market to take advantage of any price increase.

UUUU Boasts a Debt-Free Balance Sheet

As of Sept. 30, 2024, Energy Fuels had $183.2 million of working capital, including $47.46 million of cash and cash equivalents, $101.15 million of marketable securities (interest-bearing securities and uranium stocks), $35.91 million of inventory, and no debt.

This is commendable compared with the industry’s debt-to-capital ratio of 28%. Meanwhile, peers Cameco CCJ and NexGen Energy NXE have debt-to-capital ratios of 18.5% and 28%, respectively.

Recent Acquisitions Highlight UUUU’s Diversification Efforts

Base Resources to Boost REE Production: In October, Energy Fuels acquired Base Resources Limited to become a leading global producer of REE — essential in various clean energy technologies. This will also strengthen UUUU’s potential to become a major producer of titanium and zirconium minerals.

Base Resources’ Toliara Mineral Sand Project complements Energy Fuels’ Bahia Mineral Sand Project in Brazil and 49% stake in the Donald Mineral Sand Project in Australia. With this move, UUUU ensures a long-term supply of monazite that can be processed to produce advanced REE materials at its White Mesa Mill, a cost-effective and capital-efficient strategy.

Despite the solid prospects, Energy Fuels’ efforts to grow its REE business have been perceived as risky due to China’s dominance in the sector. On-ground activities have been suspended at the Toliara project since 2019 due to resistance from local communities. The project is currently subject to negotiations of fiscal terms with the Madagascar government. It is also awaiting certain government approvals and actions before the suspension can be lifted and development can be carried out.

RadTran to Capitalize on Isotope Shortage: Targeted alpha therapy is showing great promise in clinical trials for the treatment of cancer. It requires certain isotopes (Ra-226 and Ra-228) that are scarce in supply.

To address this issue, Energy Fuels recently acquired RadTran LLC to use its know-how to recover these isotopes from its process streams at the White Mesa Mill.

Energy Fuels Expected to Return to Profitability in 2025

Bottom-line estimates for UUUU for 2024 have been unchanged following the third-quarter results. The loss estimate for 2024 is pegged at 11 cents for 2024, which suggests a slight improvement from the loss of 12 cents incurred in 2023.

Uranium prices have dipped 15.2% year to date and are currently $77.20 per pound. The world’s top uranium miner, Kazatomprom, recently reported a 16% year-over-year increase in third-quarter output, dispelling supply concerns in the near term. The expectation of lower sales amid a weak backdrop for uranium prices will likely lead to a full-year loss for UUUU in 2024.

We believe that the recent downtrend in uranium prices is temporary, as solid demand fundamentals amid limited supply prospects point to higher sustained uranium prices in the future.

The Zacks Consensus Estimate for 2025 earnings has moved up in the past 60 days to 10 cents. This indicates a return to profitability for the company.

Average Target Price for UUUU Suggests Solid Upside

Based on short-term price targets offered by five analysts, the Zacks average price target is at $9.59 per share. The average suggests a 58.51% upside from Wednesday’s closing price.

UUUU Prepares to Ride on Clean Energy Trends

The global push for clean energy and technological advancement will drive significant demand for uranium and REE. Energy Fuels has four long-term contracts with major U.S. nuclear utilities that require deliveries of base quantities of 2.8 million pounds of uranium through 2030.

The company is preparing two additional mines in Colorado and Wyoming (Whirlwind and Nichols Ranch), which could increase uranium production to a run rate of more than two million pounds per year as early as 2026. Energy Fuels is also advancing several other large-scale U.S. mine projects to raise the capacity to 5 million pounds per year to bet on the robust uranium market conditions.

UUUU’s Valuation Looks Stretched

Energy Fuels is currently trading at a forward sales multiple of 7.88, well above the industry average of 3.39. The company is, however, cheaper than peers Cameco and Uranium Energy’s UEC price-to-sales ratios of 9.12 and 34.54, respectively.

Should You Buy UUUU Stock Now?

Even though Energy Fuels’ earnings were lower than expected in the third quarter, it made two important acquisitions — Base Resources and RadTran. Backed by UUUU’s debt-free balance sheet, the company is advancing with its growth plans to capitalize on the expected surge in uranium and REE demand. For those who already own the stock, it will be prudent to stay invested for solid long-term prospects in both uranium and REE markets.

However, considering its premium valuation, shipment issues at Pinyon and the ongoing suspension at Toliara, new investors should monitor Energy Fuels’ developments closely for a more appropriate entry point. The stock’s Zacks Rank #3 (Hold) supports our thesis.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Cameco Corporation CCJ is scheduled to report third-quarter 2024 results on Nov. 7, before the opening bell.

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

The Zacks Consensus Estimate for CCJ’s earnings for the third quarter is pegged at 26 cents per share, which indicates an 8.3% improvement from the prior-year quarter’s reported figure. Over the past 60 days, the estimate has moved up 8.3%.

The consensus estimate for Cameco’s third-quarter revenues is $551 million, indicating 28.6% growth from the year-ago quarter's actual.

Cameco’s Earnings Surprise History

Over the trailing four quarters, Cameco’s earnings missed the Zacks Consensus Estimate thrice and surpassed the same once. CCJ has an average trailing four-quarter negative earnings surprise of 11.1%. The trend is shown in the chart below.

What the Zacks Model Unveils for Cameco

Our proven model does not conclusively predict an earnings beat for Cameco this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here.

You can uncover the best stocks before they are reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Cameco is -47.06%.

Zacks Rank: CCJ currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Have Shaped CCJ’s Q3 Performance

Uranium prices decreased 14% since the beginning of 2024 as concerns around global supply have eased. Despite the dip, uranium prices averaged $81.58 per pound for the third quarter of 2024 and were 30% higher year over year. Prices received a boost near the end of the third quarter from China’s move to increase sustainable energy development with nuclear energy. China is building 22 of the 58 global reactors. Interest in nuclear power also gained momentum in the United States.

CCJ has a 69.8% stake in the McArthur River mine and 83% in the Key Lake mill — the world's largest high-grade uranium mine and mill. Cameco has a 54.5% interest in Cigar Lake, which is the world’s highest-grade uranium mine.

In 2024, the McArthur River/Key Lake and Cigar Lake are expected to produce 18 million pounds each. Of the total production, Cameco’s share is at 22.4 million pounds of uranium, higher than the 17.6 million pounds in 2023.

CCJ plans to sell 32-34 million pounds of uranium in 2024, whereas it sold 32 million pounds in 2023. Having sold 13.5 million pounds in the first half of 2024, Cameco has to sell 18.5-20.5 million pounds of uranium in the second half of 2024, suggesting a rise from the 16.8 million pounds sold in the second half of 2023.

Cameco also owns a 40% stake in the Inkai mine, which has been facing procurement and supply-chain issues, mainly related to sulfuric acid deliveries. Transportation challenges, construction delays and inflationary production costs are other headwinds.

Fuel services production for 2024 is expected to be 13.5-14.5 million kgU, suggesting a rise from the 13.3 million kgU reported in 2023. Sales deliveries are expected to reach 12-13 million kgU in 2024, whereas it reported 12 million kgU in 2023.

These anticipated improvements in production and sales for uranium and fuel services for the full year are likely to have positively influenced CCJ’s third-quarter performance. However, routine maintenance at Cigar Lake, McArthur River and Key Lake in the third quarter is likely to have somewhat impacted production figures. Despite this, we expect uranium production in the third quarter of 2024 to be more than the 3 million pounds produced in the third quarter of 2023. Uranium sales are also likely to have been higher than the 7 million pounds sold in the year-ago quarter, as Cameco is likely to have capitalized on the higher uranium prices through the quarter.

In the third quarter of 2024, fuel services production and sales are expected to surpass 2 million kgU and 2.1 million kgU, respectively, in the year-ago quarter.

Higher sales volumes in both uranium and fuel services segments, coupled with increased uranium prices, are expected to have benefited Cameco’s top-line performance.

Meanwhile, the average unit cost of production at McArthur River/Key Lake is expected to have been higher in the quarter as it ramps up production. The average unit cost of sales in the fuel services segment is likely to have been elevated than the prior-year quarter’s actual due to the lower production expectations at the Port Hope conversion facility. CCJ will continue to incur care and maintenance costs for the ongoing curtailment of its tier-two assets, which are expected between $50 million and $60 million.

Cameco has been progressing to lower administration, exploration and operating costs, and capital expenditure. This will help offset the impacts of elevated costs on CCJ’s earnings.

In November 2023, CCJ acquired a 49% interest in Westinghouse Electric Company. Westinghouse is expected to incur a net loss of $170-$230 million in 2024 due to the impacts of the purchase accounting, which requires the revaluating of Westinghouse’s inventory and other assets at the time of acquisition, and the expensing of some non-operating acquisition-related transition costs. Of the expected net loss for Westinghouse in 2024, $170 million has already been incurred in the first half. Due to normal variability in the timing of its customer requirements, and delivery and outage schedules, we expect the Westinghouse segment to have seen a stronger performance in the third quarter of 2024.

CCJ’s share of adjusted EBITDA from Westinghouse is expected between $445 million and $510 million in 2024. Of this, $197 million of EBITDA was realized in the first half of 2024 and the major part ($248-$313 million) remains to be realized in the second half of 2024. We, thus, expect the third-quarter contribution from Westinghouse to have been higher.

CCJ’s Price Performance & Valuation

Cameco shares have appreciated 33.7% in the past three months, outpacing the industry’s return of 7%. In comparison, the Zacks Basic Materials sector and the S&P 500 have gained 2.7% and 9.5%, respectively.

Meanwhile, the company’s peer Energy Fuels UUUU and Denison Mine Corp. DNN have gained 21.8% and 31.8%, respectively.

The Cameco stock is trading at a forward price-to-sales ratio of 9.36 compared with the industry’s 1.21. It is also above its five-year median of 5.56.

The company is, however, cheaper than peer Uranium Energy’s UEC price-to-sales ratio of 33.27.

Investment Thesis on Cameco

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. Supported by a strong balance sheet, Cameco is making investments to boost its capacity. For the next five years, 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.

The ongoing procurement and supply-chain issues, and construction delays at Inkai are headwinds for Cameco. Also, changes to the Mineral Extraction Tax for uranium in Kazakhstan, which will take effect in 2025, will impact its earnings.

Should You Buy CCJ Stock Now?

Cameco is likely to deliver improved results in the third quarter, supported by higher sales volumes and uranium prices. Regardless of the earnings outcome, investors already owning CCJ shares should retain the stock in their portfolios to benefit from its solid long-term fundamentals. However, given CCJ’s premium valuation and ongoing challenges at Inkai, new investors can wait for a better entry point.

Zacks Investment Research