Should You Buy, Sell, or Hold Cameco Corporation?

Cameco Corporation (TSX:CCO)(NYSE:CCJ) released its fourth-quarter results on February 6, and it crushed analysts’ estimates. Is now the time to buy?

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Cameco Corporation (TSX:CCO)(NYSE:CCJ), one of the world’s largest producers of uranium, announced its fourth-quarter earnings after the market closed on February 6, and the results surpassed analysts’ expectations by a wide margin. Let’s break down the results and the company’s outlook on fiscal 2015 to determine whether we should consider initiating long-term positions today, or if we should look elsewhere for an investment instead.

Beating down the expectations

Here’s a summary of Cameco’s fourth-quarter earnings compared to what analysts had anticipated and its results in the same quarter a year ago.

Metric Reported Expected Year Ago
Earnings Per Share $0.52 $0.29 $0.38
Revenue $889 million $782 million $977 million

Source: Thomson Reuters

Cameco’s adjusted earnings per share increased 36.8% and its revenue decreased 9% compared to the fourth quarter of fiscal 2013. The company’s strong earnings per share growth can be attributed to net income increasing 36.7% to $205 million, while its weak revenue results can be attributed to the total sales volume of uranium decreasing 15.7% to 10.7 million pounds, which led to revenues from uranium sales decreasing 4% to $606 million.

The company also noted that it was positively impacted by the average realized price of uranium increasing 14% to $56.78 per pound and the average unit cost decreasing 9.7% to $34.27 per pound during the quarter.

Here’s a quick breakdown of six other notable statistics and updates from the report compared to the year-ago period:

  1. Production volume of uranium increased 9.3% to 8.2 million pounds.
  2. Revenue in the company’s NUKEM segment decreased 15.4% to $159 million.
  3. Revenue in the company’s fuel services segment increased 11.6% to $125 million.
  4. Gross profit increased 35.7% to $251 million.
  5. Gross margin expanded 930 basis points to 28.2%.
  6. Cash provided by continuing operations increased 44.8% to $236 million.

Cameco also provided its outlook on fiscal 2015, calling for the following results:

  • Flat to a 5% decrease in revenue.
  • The production of 25.3-26.3 million pounds of uranium.
  • The sale of 31-33 million pounds of uranium.
  • Average unit cost of uranium sales to increase 5-10%.
  • Capital expenditures of approximately $370 million.

Should you buy shares of Cameco today?

Cameco Corporation is one of the world’s leading producers of uranium, and it achieved a double-digit increase in fourth-quarter profit despite a 9% decrease in revenues.

I think Cameco’s stock represents an intriguing long-term investment opportunity, regardless of how it responds to the earnings release, because it trades at very low forward valuations and because it pays a healthy dividend. At current levels, the company’s stock trades at just 19.1 times fiscal 2015’s estimated earnings per share of $0.99, which is very inexpensive compared to its five-year average price-to-earnings multiple of 28.1 and the industry average price-to-earnings multiple of 22.7. Cameco also pays an annual dividend of $0.40 per share, which gives its stock a generous 2.1% yield, and I think this makes it both a value and dividend play today.

With all the information above in mind, I think Cameco represents one of the best long-term investment opportunities in the industrial metals and minerals industry today, so Foolish investors should take a closer look and consider initiating positions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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