Why Shares of Cameco Are Powering Higher

Cameco (TSX:CCO) shares have surged more than 400% in the last five years alone, with more growth on the way.

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There are few stocks on the TSX today that have seen the rising share price enjoyed by Cameco (TSX:CCO). And I’m not talking about a short-term rise. Cameco stock seems to have staying power, with shares up 84% in the last year and 402% in the last five years!

Yet, given its recent earnings results and predictions, it looks like shares should only continue to climb. So, let’s look at what’s going on with Cameco stock.

A look to the past

One of the biggest impactors for the price of Cameco stock is the price of uranium. Cameco’s primary business is the mining, refining, and selling of uranium. So, a higher uranium price translates directly to increased revenue for Cameco. They sell more uranium for a higher price, leading to a bigger profit margin. This is reflected in their financial statements, with rising uranium prices like those seen in 2023 leading to a doubling of Cameco’s earnings.

Yet Cameco doesn’t just rely on spot uranium prices. They secure long-term contracts with customers at a fixed price or a price linked to an index. This provides some stability and predictability to their income. Furthermore, Cameco also uses contracts with pricing mechanisms tied to the current market price (spot or long-term). This allows them to benefit from rising uranium prices but also exposes them to price fluctuations.

Earnings continue to rise

During the company’s most recent earnings report, Cameco stock gave investors several reasons for more growth. Cameco’s operational performance in the first quarter seems robust across its uranium, fuel services, and Westinghouse segments. Strong production performance in the uranium segment, along with disciplined long-term contracting, indicates stability and potential for growth.

Also, the company benefits from a market where nuclear energy is experiencing sustained positive momentum, especially in the context of climate change mitigation and energy security concerns. Increased public support, policy decisions, and market-based solutions underline the long-term demand for nuclear energy.

Cameco stock also maintains a strong balance sheet with a focus on debt reduction and prudent refinancing plans. It has a significant cash position, a $1.0 billion undrawn credit facility, and plans for debt repayment, ensuring balanced liquidity to execute its strategy effectively. 

Looking ahead

Shares are likely to rise even higher than today’s share price if Cameco stock’s outlook gives us anything to hope for. The company expects consolidated revenue to remain strong, estimated to be between about $2.9 billion and $3.0 billion for 2024. This indicates a continuation of healthy top-line growth, driven by its core operations in uranium, fuel services, and Westinghouse segments.

Furthermore, Cameco maintains a positive outlook for its share of Westinghouse’s adjusted earnings before interest, taxes, depreciation, and amortization. This is projected to be between $445 million and $510 million for 2024. There is, therefore, a strong contribution from its investment in Westinghouse, a significant player in the nuclear energy sector.

So, with the market continuing to move towards nuclear power and renewable assets, Cameco stock looks well positioned in the year ahead. In fact, its shares look positioned to continue growing far into the future as well.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Cameco. The Motley Fool has a disclosure policy.

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