Mining stocks are companies focused on exploring, extracting, and processing deposits of valuable minerals such as gold, silver, copper, lithium, limestone, and more. Investors would be wise to identify metals and minerals that are crucial to the global economy, which should translate into sustained demand and higher profit margins for mining companies.
While the mining industry is cyclical, mined materials experience robust demand during periods of economic expansion, resulting in higher prices and profit margins. Here is one Canadian mining stock you can consider buying today.
An overview of Cameco Corp.
Valued at $23 billion by market cap, Cameco (TSX:CCO) is one of the largest global providers of uranium fuel. Its controlling ownership of the world’s largest high-grade reserves and low-cost operations, as well as investments across the nuclear fuel cycle, provides Cameco with a competitive moat.
Global utilities rely on Cameco to provide nuclear fuel solutions for the generation of carbon-free nuclear power. Cameco emphasized it is experiencing full-cycle growth due to unprecedented demand for nuclear energy.
Geopolitical tensions have meant governments are reevaluating energy security policies to reduce risk and eliminate reliance on unstable jurisdictions. Moreover, the transition towards clean energy sources is inevitable as countries fight climate change. In fact, 28 countries have signed an international declaration calling for a tripling of nuclear energy capacity by 2050.
What next for Cameco stock?
Cameco reported adjusted net earnings of US$339 million in 2023, up from US$135 million in the year-ago period. It ended 2023 with a healthy contract book and long-term commitments of 205 million pounds of uranium with 37 customers. The uranium miner stated these commitments account for 20% of its current reserve and resource base, providing Cameco with exposure to improving customer demand.
Cameco has a strong balance sheet and ended 2023 with US$567 million in cash, US$1.8 billion in total debt, and an undrawn credit facility of US$1 billion.
The company expects its enviable growth to continue in 2024 as it is positioned to realize the benefits of its investment in Westinghouse. Cameco has a 49% interest in Westinghouse and expects the investment to increase adjusted EBITDA between US$445 million and US$510 million in 2024. It expects EBITDA growth to range between 6% and 10% in the next five years.
Is Cameco stock undervalued?
Cameco stock has returned more than 300% to shareholders in the last five years, easily outpacing the broader markets. Currently, the TSX mining stock is priced at 47 times forward earnings, which might seem steep. However, analysts expect Cameco to increase adjusted earnings by 48% annually in the next five years.
This means analysts expect Cameco’s earnings per share to expand to US$4.20 in 2028. If Cameco stock is priced at 30 times earnings, it should rise to US$126 in the next four years, indicating an upside potential of over 150% from current levels.
Recently, investment bank Goldman Sachs initiated coverage on Cameco stock with a “buy” rating and price target of US$55. A report from The Fly suggests Goldman Sachs is bullish on Cameco due to the company’s leading market share and rising demand for uranium.
