Cameco Corp Earnings Preview: 3 Key Questions Investors Should Seek Answers to

Watch out for these three things in Cameco Corp’s (TSX:CCO)(NYSE:CCJ) Q1 earnings report to know where the stock is headed.

| More on:

This year has been nothing short of a roller coaster ride for investors in Cameco Corp (TSX:CCO)(NYSE:CCJ). After starting on a solid note, the uranium stock has plunged almost 11% in just the past three months. Uranium prices remain subdued, and the recent bankruptcy of Toshiba Corp.’s nuclear subsidiary Westinghouse has sent uranium investors scurrying for cover.

This uncertainty in the uranium markets is what makes Cameco’s upcoming first-quarter earnings release on April 28 so important. Here are three key things investors should watch for.

Can Cameco realize higher prices?

Consensus analysts’ estimates peg Cameco’s Q1 revenue to come in roughly 5% lower year over year but earnings per share to be flattish.  That’s encouraging given how low uranium prices are right now.

Investors should know that roughly 40% of Cameco’s portfolio comprises fixed-price contracts. The remaining is based on spot prices. It is this long-term contracting strategy that has come to Cameco’s rescue during the downturn. Infact, even mining giant Rio Tinto’s (NYSE:RIO) Namibia-based subsidiary Rossing Uranium just reported big profits for FY 2016 versus losses in 2015 thanks to previous contracts and higher production.

It’s also encouraging that uranium prices have come off their December lows and are hovering in mid-20s in U.S. dollar, or low-30s in CAD terms.

What matters is Cameco’s realized selling price. It last projected full-year prices to average $49 per pound thanks to commitments under prior contracts. If uranium prices continue to recover, Cameco could end up with stronger profits.

Can Cameco boost margins?

Because uranium prices aren’t in Cameco’s hands, it’s crucial that the company can keep a lid over costs to maintain margins. Last year, suspension of operations at some of its mines like Rabbit Lake added to Cameco’s costs.

The uranium markets are still in a delicate state, though prices appear to be stabilizing. The industry is hoping for a better supply and demand balance ever since major uranium producing country Kazakhstan announced its intentions to cut production by almost 10% earlier this year.

In Cameco’s upcoming earnings report, investors should watch for any production curtailment plans. Last time, Cameco projected full-year cost of sales to average $36-$38 per pound, which means a gross profit of only about $12 per pound at the midpoint cost. That translates into substantially lower gross profits versus 2016 based on Cameco’s estimated sales volumes.

So either volumes have to pick up or costs have to come down to boost Cameco’s profits. If either moves in reverse gear during the first quarter, investors should be cautious.

Can Cameco maintain dividends?

This, of course, remains the key concern for investors right now. While Cameco didn’t cut its dividends even after the Fukushima disaster, uranium prices haven’t been as low before as now. The uranium maker’s dividends are already overshooting its free cash flows, so lower profits this year could force the company to cut its dividends. So keep an eye on Cameco’s cash flow trends in its upcoming earnings report.

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 Neha Chamaria has no position in any stocks mentioned.

More on Metals and Mining Stocks

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

If Gold Prices Continue to Climb, These 3 Stocks Could Skyrocket

Market certainty and geopolitical tensions typically enhance the demand for gold, and this rise is reflected in a wide range…

Read more »