The nuclear industry is gaining steam. Cameco Inc. (TSX: CCO) is one of the largest global providers of uranium, which powers nuclear power plants. In recent months, Cameco’s stock price hit an all-time high of almost $150 per share.
Why is Cameco rallying so much? Where will it go from here? And finally, is Cameco stock still a buy today?
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Why Cameco is rallying
The nuclear energy boom is being driven by three major themes. The first is the global desire for energy security. The second is decarbonization. And the third is the digital infrastructure boom. Nuclear energy is leading the race to address all of these issues, and Cameco is reaping the rewards.
Just last month, Cameco announced a transformational agreement that highlights the bullish state of the nuclear industry. In this agreement, the U.S. government and Westinghouse (which Cameco has a 49% interest in) entered into a partnership to accelerate the deployment of nuclear power. This means that the government has committed to spending at least $80 billion on the construction of new reactors across the United States using Westinghouse nuclear reactor technology.
Back in 2023, Cameco acquired a 49% interest in Westinghouse, a nuclear reactor technology original equipment manufacturer (OEM). This acquisition strengthened and expanded Cameco’s position in the nuclear fuel cycle. The company moved beyond a mining company that provides uranium to nuclear power plants to one that is involved in the actual building and maintenance of these nuclear reactors.
Where will it be in five years?
So, this leads me to my next question – where will this nuclear energy stock be in five years? Well, demand for nuclear power is rising. Nuclear energy is undergoing a significant expansion and meaningful transformation. Also, the U.S. government and many governments across the globe are investing heavily into the nuclear industry.
As one of the globe’s leading players in this industry, Cameco is extremely well-positioned for this momentum, and it stands to benefit tremendously if it continues to focus on the right strategic moves. One such move is its purchase of its interest in Westinghouse, which strengthened Cameco’s footprint in the industry. Another is its strategy of managing risk through focusing on long-term contractual agreements, even if it means lower pricing.
All of this will drive the company’s revenue and earnings higher over the medium term to long term. Simply put, the future looks bright for Cameco.
Is Cameco stock still a buy?
Finally, let’s take a look at whether Cameco stock is still a buy even after its meteoric rise. As you can see from the stock price graph below, Cameco has rallied almost 64% this year alone. This means that Cameco is currently trading at 85 times this year’s expected earnings and 65 times next year’s expected earnings.
While this valuation appears high, I think that it’s misleading. In my view, the earnings power that Cameco will demonstrate over the next few years might very likely be far greater than what many investors expect. At this point, given the strong momentum the nuclear industry is experiencing right now, I think that Cameco stock is definitely still a buy.
The bottom line
These kind of transformational industry happenings do not come around too often. But right now, Cameco is in the midst of one. We can therefore expect more upside from this nuclear energy stock, in my view.
