Why Cameco Stock Soared 23% This Year

Cameco stock continues to ride high on strong supply/demand fundamentals and growing momentum in the nuclear industry.

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The nuclear energy industry has finally shaken off the bad press. In fact, it has gotten a lot of interest in recent years as a viable solution to the climate crisis. Cameco Inc. (TSX:CCO) is one of the biggest nuclear energy powerhouses today. This year, Cameco stock surged 23%.

Here’s why:

The long-term outlook for Cameco is strong

Cameco is 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 makes it very valuable. You see, the fundamentals for nuclear energy have never been better.

One thing has become increasingly clear over the last few years – nuclear energy is an essential energy source if we are to meet climate goals. In fact, net zero targets are being put forward in many countries around the world, and nuclear energy is increasingly being recognized as a key solution to achieve these targets. 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 have meant that supplies of uranium are quite low. This means that at the same time that demand is soaring, supply shortfalls are a possibility. This has and will continue to drive up the price of uranium. This will benefit Cameco as the company increases its uranium output.

Results reflect strong fundamentals

In the first quarter of 2024, Cameco reported adjusted earnings before interest, taxes, and depreciation (EBITDA) of $345 million, 53% higher than the prior year. While revenue declined 8%, the quarter reflects normal quarterly variability. Thus, management has maintained Cameco’s 2024 outlook. As such, the company expects 2024 revenue to come in between $2.9 billion and $3 billion. This represents a growth rate of between 12% and 16%.

Furthermore, according to consensus expectations, earnings per share (EPS) in 2024 is expected to come in at $0.94, 20% higher than the prior year. Looking farther ahead, earnings growth is expected to accelerate in the next few years, reflecting the strong supply/demand outlook for nuclear energy.

Cameco stock dips

In recent days, Cameco’s stock price has actually dipped a little, down just over 7% from its June highs. This, in my view, is no cause for concern. On the contrary, I think this dip gives investors a nice moment to gain exposure to the stock.

In terms of valuation, if we look at Cameco’s price-earnings (P/E) ratio off of this year’s expected EPS, it looks very high, at over 70 times. But if we calculate the company’s price-earnings ratio using estimates for 2025 and 2026, we can see a totally different picture. In fact, Cameco stock is trading at 39 times its 2025 consensus EPS estimate and 29 times its 2026 consensus EPS estimate.

This, coupled with the strong momentum and the strong upside that still exists, leads me to conclude that Cameco stock is attractively valued. The company holds an unshakeable leading position in the uranium industry at a time when the fundamentals have never looked better.

The bottom line

In conclusion, Cameco’s stock price has continued to rally in 2024 as a result of the strong momentum in the uranium/nuclear industry. The long-term outlook remains strong.

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 Karen Thomas 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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