Is Cameco the Next Big Multibagger?

Cameco (CCJ) announced fourth quarter ended December 31, 2015 total revenue of $975 million, up 10 percent year-over-year from $889 million during the same period last year. Going forward into 2016, Cameco estimates the annual revenue to decline nearly 5% compared to last year.

Cameco declared fourth quarter of 2015 adjusted net earnings of $151 million or $0.38 per adjusted diluted share, down 26 percent year-over-year from $205 million or $0.52 per adjusted diluted share in the fourth quarter of 2014.

An expanding market

Moving ahead, there’s hugely expanding unmet requirements and thus, notable prospective long-term uranium mining activities are projected for the future.
Further, significant global consumption of uranium surpasses its production over a longer term with just 35% of key fuel consumed over the past three years that has been substituted under a long-term agreement.

The nuclear ore mining company reported continued year-over-year top line growth primarily driven by solid uranium production results for the period and complete year. However, the company’s bottom line suffered due to poor average realized ore pricing and driven by a depressed Canadian Dollar.

The significantly rising year-over-year energy consumption is increasingly outpacing the energy supply and thus, allows Cameco with notable growth opportunity to continue to generate the much-needed nuclear fuel for electricity production which is expected to drive sustainable long-term company growth while delivering attractive shareholder returns.

There’s significant and continuing market uncertainty regarding the spot pricing and long-term global uranium pricing with Cameco’s average realized pricing for the key uranium ore somewhat better than the average market pricing. Moving ahead, the company is hugely focused on delivering attractive long-term growth with a huge base of key resources and reserves, top-tier globally recognized asset base, highly-diversified supply and strategic judgments focused on profitability.

The high-grade uranium ore production from each of the Cameco’s strategic uranium mining areas amid currently weaker global commodity demand and pricing environment is believed to somewhat help the company emerge strongly from the current market downturn while delivering attractive shareholder returns.

Importantly, the long-term growth outlook of the global uranium market seems well-established against the world’s expanding requirements for cleaner, safer, more reliable and big energy sources. However, the global demand recovery for nuclear fuel is projected to be slow but steady after the market conditions deteriorated post-occurrence of Fukushima nuclear incident.

Cameco suffered greater impairment charges worth $210 million during the fiscal year 2015 as against $131 million of key impairment charges borne during last year and linked to the strategic Rabbit Lake operations, mainly due to greater uncertainty linked to the prospective sources of production from the Rabbit Lake mill owing to the continuing tough global economic conditions.

The greater impairment charges borne by Cameco at Rabbit Lake for the year are bound to impact this quarter’s financial results. However, the prospective growth outlook for the global uranium mining industry looks hugely positive given, the expanding demand for energy across the globe.

Conclusion

Overall, the investors are advised to “Hold” their position in Cameco Corporation considering solid long-term growth prospects of the company. However, Cameco needs to optimize its debt-burdened balance sheet with significant total debt of $1.09 billion against weaker total cash position of $333.76 million only, restricting the company to make future growth investments. The profit margin of 2.37% seems satisfactory. The PEG ratio of 0.34 indicates weak company growth.
Published on Apr 22, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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