Cameco Stock: Buy, Sell, or Hold?

Cameco stock (TSX:CCO) has risen by above 80% in the last year alone, and 14% in the last month. Will the tear on shares ever end?

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Few companies on the TSX today demonstrate the staying power offered by Cameco (TSX:CCO). Cameco stock has been powering higher and higher this year, with shares up 82% in the last year already. Add on to that how shares have climbed about 14% in the last month alone at the time of writing.

But how long can this last? Today, we’re going to take a look at whether Cameco stock is still a buy, or whether it’s time to start considering selling the stock.

Buy

If you’re looking to buy up Cameco stock, there are many reasons to consider it. Cameco has reported strong operational performance across its uranium, fuel services, and Westinghouse segments. The increase in uranium production (up 29% year over year) and reduction in unit cash costs of production (down 16%) demonstrate efficient and effective operations. 

These improvements suggest Cameco can generate higher margins and better profitability going forward. Furthermore, the financial outlook for 2024 remains solid, with Cameco stock expecting consolidated revenue between US$2.9 billion and US$3 billion, and Westinghouse’s adjusted earnings before interest, taxes, deprecation and amortization (EBTIDA) between US$445 million and US$510 million. 

The company’s financial performance in Q1 2024, including a significant increase in adjusted EBITDA (up 53% from Q1 2023), underscores its ability to generate strong cash flows. This financial strength supports the company’s debt reduction and refinancing plans, enhancing its financial stability and flexibility.

Sell

Yet there are some red flags for Cameco stock as well. For instance, Cameco stock reported a net loss of US$7 million in Q1 2024, a significant drop from a net profit of US$119 million in Q1 2023. This swing to a net loss is a negative indicator for investors. Furthermore, revenue declined by 8% compared to the same period last year, falling from US$687 million to US$634 million. This decline raises concerns about the company’s ability to maintain or grow its revenue base.

What’s more, Cameco expects Westinghouse to generate a net loss of between US$170 million and US$230 million in 2024, primarily due to purchase accounting impacts. This substantial loss can weigh heavily on Cameco stock’s overall financial performance.

Yet, moving outwards from high debt and ongoing cost issues, Cameco stock has bigger problems. Although production volume increased by 29%, the unit cost of sales also increased by 15%, driven by higher-cost purchases. The increased costs could affect profitability if not managed effectively. Add to this the cash cost of purchased uranium increasing by 31%, from US$66.92 to US$87.75 per pound. Higher costs of purchased uranium could impact margins, especially if market prices do not rise correspondingly.

Hold

So with that in mind, a revised valuation may already be reflected in the company’s share price, and it’s best to hold the stock for now. Overall, Cameco’s first-quarter operational performance appears robust across its uranium, fuel services, and Westinghouse segments. This stability in operations reflects positively on the company’s ability to navigate market challenges. And, of course, 2024 looks strong as well.

What’s more, Cameco’s strategic focus on nuclear energy, coupled with its premier, tier-one assets in stable geopolitical regions, positions it as a reliable supplier in the market. Moreover, its investments across the fuel cycle and reactor lifecycle add to its strategic advantage. This is supported by strong cash flow generation for 2024.

Beyond 2024, Cameco’s disciplined approach to long-term contracting, aimed at maintaining exposure to higher prices, reflects a prudent risk management strategy. Additionally, the company’s large and growing pipeline of business under discussion suggests potential future growth opportunities. So as demand continues for clean energy solutions and Cameco stock remains at the head of the pack, it could continue to be a strong option for investor portfolios.

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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