Is Cameco Stock Still a Buy?

Cameco stock recently reported earnings that showed the Westinghouse investment is creating some major costs. But that could change.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published November 14, 2024 4:40 pm EST

Cameco (TSX: CCO), a global leader in uranium production, has recently caught the attention of investors following its third-quarter (Q3) 2024 earnings report. In light of its performance, as well as key events such as the Westinghouse Electric acquisition and Donald Trump’s recent U.S. presidential re-election, there’s a renewed focus on whether Cameco stock remains a strong buy. These factors are shaping Cameco’s potential as a top choice in the nuclear energy market, where both demand and complexity are on the rise.

nuclear power plant — Source: Getty Images

Into earnings

Cameco stock’s Q3 2024 earnings report was a mix of highs and lows. Revenue surged by 25% year over year to reach $721 million, thus signalling growing demand and successful scaling efforts. However, net income plunged 95% to $7.43 million, a dramatic decline attributed largely to heightened expenses.

The revenue growth clearly shows that Cameco is tapping into a strong market for uranium, yet the lower profit margin reminds investors of the increased operational costs the company faces as it expands its role in nuclear energy. Analysts have pointed out that the decline in profit margin from 26% in Q3 2023 to just 1% this quarter raises some caution about Cameco stock’s cost management.

Cameco stock’s strategic partnership to acquire Westinghouse Electric Company in November 2023 marked a transformative moment for the company. By gaining exposure to Westinghouse’s expertise in nuclear technology and fuel services, Cameco stock has extended its reach beyond uranium mining into more of the nuclear fuel cycle. This acquisition not only diversifies Cameco’s revenue streams but also aligns it with the ongoing global shift toward clean energy. Yet, it does come with a cost, as seen in earnings.

More to come?

Currently trading at around $73.38, Cameco stock has been somewhat volatile, reflecting its mixed earnings and broader market uncertainties. Yet the market capitalization of over $32 billion indicates strong investor interest and confidence. Cameco stock’s forward price-to-earnings (P/E) ratio sits at 48.54. This reflects the high expectations for future growth and the long-term value potential seen by many investors. With a price-to-book (P/B) ratio of 5.2, Cameco may appear overvalued compared to other stocks in the energy sector. Yet its unique position in uranium and the nuclear value chain justifies a premium for many investors.

The re-election of Donald Trump as U.S. president could have positive implications for Cameco stock and the nuclear industry as a whole. During his previous term, Trump was generally favourable towards nuclear energy, supporting policies that aligned with U.S. energy independence and job creation in the sector. Given that Trump’s administration might once again advocate for domestic energy production and secure nuclear fuel supply chains, Cameco stock could benefit from any push to bolster North America’s energy security.

Looking ahead, Cameco stock’s unique positioning in the nuclear energy market is aligned with growing global interest in cleaner energy solutions. Analysts forecast revenue growth of approximately 5.3% annually over the next three years. This is considerably higher than the expected growth rate for the broader oil and gas industry in Canada. With the Westinghouse deal providing greater exposure to the fuel cycle and ongoing supportive political conditions, Cameco is well-positioned to capitalize on these trends. The company’s consistent focus on long-term contracts and stable revenue from strategic partnerships make it a compelling investment in the nuclear sector.

Bottom line

Cameco stock presents a mixed but promising picture for investors. The combination of a strong Q3 revenue increase, the strategic acquisition of Westinghouse, and a favourable political environment offers considerable upside potential. However, investors should be mindful of the challenges, such as rising operational costs and supply chain uncertainties, that could impact short-term profitability. For those with a long-term horizon and interest in the nuclear energy sector, Cameco stock remains a compelling buy, especially given its strategic moves and role in addressing the global demand for clean energy.