A Changing Market for Uranium
Uranium has taken some steps forward recently, according to the Cantor Fitzgerald Uranium Macro Update. The United States Senate Environment and Public Works (EPW) Committee advanced the bipartisan Accelerating Deployment of Versatile, Advanced Nuclear for Clean Energy (ADVANCE) Act. Analysts have noted that this is a win for the United States as it seeks to rebuild its nuclear power sector to meet green energy needs.
Equity markets are also readying for a short-term rally phase. According to Capital Markets, this is confirmed by a breakout above the April highs on the S&P 500, TSX Composite, and the Russell 2000, based on the Nasdaq's closure above April's highs.
This close could target important technical resistance near the August highs on the S&P 500. Capital markets "recommended that clients utilize near-term equity market weakness as an opportunity to add exposure for the next short-term rally phase, which we believe has upside, by time, into May."
In the long term, Capital Markets expects interest rates and inflation to remain higher and stay in place for longer than most are anticipating.
Catalyst: Cameco Adapting to Uncertainty
Cameco Corp. (CCO:TSX; CCJ:NYSE) released its Q1 financial results earlier this month, which analysts have described as a "mixed bag." For the rest of 2023, the company expects improved earnings and cash flow as the McArthur River project is back in operation. Additionally, the company expects higher uranium prices to bolster its performance for the rest of the year.
Andrew Weekly of Smith Weekly described the company as "a beautiful one for me to have in my portfolio."
Executive VP and CFO Isaac specifically noted that "we're in the early innings of a contracting cycle. We're capturing forward demand on market-related terms. We're benefiting from having the only operating conversion plant in North America at a time when conversion prices have never been higher. And we're seeing the recovery in uranium and in the fuel services segment as a result. And now we're adding on, even more, derisk cash flows from the Westinghouse acquisition, putting us into a very strong business case going forward."
In the Q1 operating results, it noted that the company's produced 4.5mlbs U308 was below the 5.1mlb forecast, with the McArthur River producing 3.4mlbs, or 22% of 2023's guidance, indicating that the production ramp-up on the site is proceeding well. According to Smith Weekly, despite lower production, sales were materially higher, with 9.7mlbs vs. CGe 7.5mlbs, and costs were relatively in line with the company's estimates and guidance. In the Fuel sector, the production of 4.1m kgU was above the company's 3.5m kgU estimate, but sales were lower than expected at 2.5m kgU vs. CGe 3.5m kg. The unit cost of sales, CA$25.14, was above Smith Weekly's forecast.
Why Cameco?
Cameco has made some changes, including revisions to guidance. Cameco increased its revenue guidance for the uranium segment to between CA$1,830m and CA$1,920, which is a 5% increase in the company's average realized price guidance. Average unit costs were also increased to between CA$46 per pound and CA$47 per pound.
Jefferson Research released a report in Q1 of 2023 that said, "Cameco Corporation is showing strong Balance Sheet Quality and Operating Efficiency, but Valuation suggests a higher amount of price risk, and Cash Flow Quality and Earnings Quality are both weak." The report awarded Cameco a rating of "sell."
However, Jefferson Research rated Cameco's Balance Sheet quality as the strongest, as Cameco has the ability to pay current operating costs and fund future growth.
Additionally, "the quick ratio increased from 4.5X to 6.2X. The higher quick ratio indicates that CCO has increased the amount of liquid assets relative to current liabilities. In addition, AR DSOs improved from 42 to 27 days, indicating that CCO has shortened the time it takes on average to receive payment from its customers, thereby increasing liquidity."
Streetwise Ownership Overview*Operating Efficiency was also rated as strong due to its ability to convert its assets into revenues and make earnings and cash flow margins available for use.
Ownership and Share Structure
Cameco has a wide variety of institutional investors, who own 24.39% of the company. Fidelity Management & Research Company LLC owns 4.82% of the company with 20.88 million shares. The Vanguard Group Inc. owns 3.42% with 14.83 million shares. Capital World Investors owns 3.30% of the company with 14.28 million shares. Mirae Asset Global Investment Management owns 3.17% with 13.71 million. William Blair Investment Management owns 2.36% with 10.24 million. Alliance Bernstein L.P. owns 1.72% with 7.43 million. T. Rowe Price Associates Inc. owns 1.51% with 6.54 million. KeyBanc Capital Markets owns 1.51% with 6.53 million. Fidelity Investments Canada ULC owns 1.43% with 6.21 million, and Sprott Asset Management LP owns 1.15% with 4.96 million.
There are 433.03 shares outstanding and 431.32 free float shares. The company has a market cap of CA$13,863.13 million. It trades in the 52-week period between CA$26.32 and CA$42.76.
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