On Tuesday, shares of Cameco Inc. (TSX: CCO) rallied 2.95% as the nuclear industry continues to recover from years of apathy and underinvestment. This follows a strong year for Cameco stock, which trades 68% above a year ago.
Let’s explore.
Cameco stock: Well-positioned for a comeback
Cameco is well-known as one of the world’s leading global providers of uranium. It is, in fact, home to the world’s largest high-grade reserves and low-cost operations.
This has led to strong results for Cameco, which continue to reflect the improving nuclear fundamentals. For example, Cameco’s fourth quarter results were strong across the board, driven by strong pricing and sales volumes. Revenue increased 61%, gross profit doubled, and adjusted EPS increased 133%. This was topped off by strong operating cash flow, which increased 160% to $201 million.
Speaking of pricing, the spot uranium price is currently above US $90 per pound. While this is below recent highs of US $106, it is roughly 80% higher than one year ago. The price remains strong and this is a clear indication that demand is strong and the market is bullish.
The political will for nuclear energy
Unlike the past, the importance and desirability of nuclear energy is top of mind today. It has become glaringly obvious that a carbon-free future is impossible without nuclear energy. It has become equally obvious that for many countries, achieving energy security is not possible without nuclear energy.
This knowledge has driven a major shift in attitude with regard to nuclear energy. And this shift continues to escalate, as global support for nuclear energy continues to gain traction. Most recently, President Biden signed a 2024 spending bill, which included $2.7 billion for the Department of Energy to boost domestic uranium production. This exceeds the $2.2 billion amount that was requested last year.
Also, at the latest G7 meeting in Japan, where France, the UK, the US, Germany, Japan, Italy, and Canada sat at the table, an alliance was made to nurture and leverage their respective nuclear sectors. Clearly, the stage is being set for nuclear energy.
Today in the US, nuclear energy accounts for 18% of total electricity generation, while renewables accounts for 22% and fossil fuels accounts for 60%. So, we can see the opportunity as the US, and the globe, transitions away from fossil fuels.
Bullish supply/demand fundamentals becoming increasingly obvious
As the U.S. government continues to push along pro-nuclear legislation as it did last Friday, the bullish state of the nuclear industry is becoming increasingly obvious.
On the demand side, things continue to look good. The global push toward decarbonization and electrification is going strong. This is evidenced in the net zero targets that are being put forth around the globe. And it seems pretty unanimous that this target will not be achieved without nuclear energy. To this end, 28 countries have signed an international declaration that calls for tripling of nuclear energy capacity by 2050. On the supply side, years of underinvestment has created low supplies and geopolitical tensions are exacerbating this supply shortfall. This situation will likely persist for the next decade.
All of this bodes well for Cameco stock.
