Is this uranium play a buy?

It’s time to explore the uranium industry. Here is the break down of $CCJ, otherwise known as Cameco Corporation.

Current Price: $19.48

52/Wk High: $21.95

52/Wk Low: $9.01

Market Cap: $7.5 Billion

Read below for the break down!

Cameco ($CCJ) is a large nuclear fuel company that focuses on producing uranium for the nuclear energy industry. With operations spanning worldwide and business strategy stemming from uranium exploration to manufacturing, the company is a leader within the industry.

Breaking down the company’s business strategy, Cameco sells fuel services and uranium directly to nuclear energy and utility companies world wide.

Furthermore, investors are speculating that nuclear power will increase as the war on climate change grows stronger. In fact, nuclear energy is one of the cleanest energy forms, producing significantly less CO2 emissions than common energy forms.

Nuclear energy is also very efficient and produces energy at a much larger capacity factor than other forms of energy. According to the Office of Nuclear Energy, nuclear energy has the highest capacity factor of all energy forms, currently sitting at 92.5%.

Rounding out the demand aspects of uranium and nuclear power, the World Nuclear Association predicts that global nuclear energy capacity will meet 475 GWe by 2030 and 715 GWe by 2050, significantly higher than the 392 GWe today.

Digging into the numbers, Cemeco beat Q1 2021 expectations with an EPS of $-0.07, slightly higher than the EPS analysts consensus estimate of $-0.09. On a year-over-year basis, EPS declined by 200%.

Shifting into revenues, Q1 2021 revenues declined to $290 million from $346 million in Q1 of 2020. On a year-over-year basis, revenues declined by $56 million.

Furthermore, gross profit landed in the negative for Q1, with the quarterly net profit totaling $-40 million. For reference, the Q1 2020 gross profit level was $35 million.

On the loss front, Cameco reported a Q1 2021 net loss of $5 million and an adjusted net loss of $29 million. Leadership noted that the loss was driven by normal contract variations and delivery patterns.

Exploring the cash aspect of Cameco, the company reported $45 million in cash provided by operations in Q1, representing a significant decline from the same time 2020 level of $182 million.

Breaking down the results by segment, the Uranium segment turned out $205 million in revenues, representing a 17% decline on a year-over-year basis. Not only that, but gross profit declined by more than 100% to $-65 million.

As for the fuel services segment, revenues declined by 11% year-over-year to a lower $84 million. The segment's gross profit also declined, totaling $27 million, representing a 10% decline.

The company noted that the results were in line and experienced significant declines due to the COVID-19 pandemic and lower energy demand.

Leadership also announced the reopening of the Cigar Lake mine, a net positive for the company. On the downside, the mine is operating at a lower run rate due to COVID-19 precautions when last reported.

Management was upbeat.

“We are excited about the future of nuclear power generation, about the fundamentals of uranium supply and demand and about the prospects for our company,” leadership said.

Shifting into the balance sheet the numbers are solid.

Total Debt: $1.003 Billion

Total Liabilities: $2.451 Billion

Total Assets: $7.425 Billion

Cash & Short Term Inv: $1.044 Billion

On a valuation basis, Cameco trades at a sizable premium.

Forward Price to Earnings: 108.22x

Price to Sales: 5.62x

Price to Book: 1.92x

Price to Cash Flow: 51.95x

Management could be more effective.

Return on Equity: -0.79%

Return on Assets: -0.52%

Return on Invested Capital: -0.54%

Given the numbers, the analysts neutral with a mean price target of $19.18/share, representing a -1.54% downside.

The high price target is $22.51/share, representing a 15.55% gain, while the low price target is $13.67/share, representing a -29.84% downside.

The big money is quite involved with 60.93% of Cameco being owned by institutions.

On a technical basis, Cameco could be presenting opportunity. According to the six-month charts the MACD is moving with significant downside momentum within a range of 0.4434 down to 0.1185.

The six-month charts are also indicating an RSI of 47.16 and CCI of -101.3987, both of which are trending to the downside.

In short, Cameco ($CCJ) is a solid long-term play on nuclear energy but must deal with the negative effects of the COVID-19 pandemic and be patient with the slow growth of the nuclear energy industry.

EAT - SLEEP - PROFIT

Disclaimer: This is not direct financial advice, simply an opinion based on independent research.