Should You Buy Cameco Stock While It’s Below $95?

Cameco Corp. (NYSE: CCJ), a leader in the uranium mining industry, has seen its stock rise dramatically, appreciating over 580% within the last five years. This upswing can be attributed to a surge in demand for uranium, driven largely by new nuclear projects and a renewed interest in nuclear energy post-pandemic. Amidst a backdrop of burgeoning energy requirements—from data centers to AI markets—the importance of uranium appears to be on the upswing.

Currently, Cameco’s stock is trading near its record high of $66.91 but is still below Wall Street’s price target of $95. Investors might wonder if now is the right time to buy Cameco stock before it potentially reaches that target. To explore this question, we will delve into Cameco’s business model and the upcoming catalysts that could influence its valuation.

Cameco operates mining and milling projects in Canada, the U.S., and Kazakhstan, producing approximately 17% of the world’s uranium supply. This position not only makes it the second largest uranium miner—trailing only Kazakhstan’s National Atomic Kazatomprom—but also serves as a significant factor driving its revenue growth and establishing its gross margins, which are closely tied to uranium prices.

Interestingly, Cameco’s growth faced challenges during 2020 and 2021. The pandemic prompted the company to pause its mining operations, resulting in slowed revenue growth. Nevertheless, following these disruptions, Cameco has bounced back with consistent double-digit revenue growth in recent years. Additionally, a key development for the company has been its 49% stake in Westinghouse Electric, a strategic move that equips it to stabilize its operations amid market volatility. This partnership elevates Cameco to a primary uranium supplier for Westinghouse’s nuclear power plants, adding another revenue stream.

Looking ahead, Cameco anticipates that its partnership with Westinghouse could contribute approximately $170 million to its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by 2025. This amount represents around 11% of its expected adjusted EBITDA of $1.55 billion for 2024. With ongoing construction projects such as two nuclear power plants in the Czech Republic and a series of U.S. nuclear contracts, Westinghouse’s growth is poised to significantly benefit Cameco.

External factors also contribute to the favorable market conditions for uranium. The ongoing ban on uranium exports from Russia, combined with supply chain constraints in Kazakhstan and political instability in key uranium-producing regions like Niger, are compelling more nuclear power companies to turn to Cameco for their supply needs. As energy demands soar, projections from Bank of America suggest that uranium prices may ascend from roughly $70 today to $120 by the close of 2025, and potentially reach $140 by 2027.

To further capitalize on demand, Cameco is planning to extend the operational lifespan of its Cigar Lake mine until 2036 and might also expand the McArthur River mine’s capacity. The reopening of its Springfields conversion site in the U.K. is also under discussion, which could enhance its market competitiveness.

Moreover, Cameco’s share in Global Laser Enrichment, a uranium enrichment enterprise, may facilitate a bundled offering of its mining, conversion, and enrichment services. This strategy could position Cameco as a “one-stop shop” for enriched uranium, catering to the growing needs of nuclear energy plants.

Over the next several years, analysts anticipate that Cameco’s revenue and adjusted EBITDA will witness compound annual growth rates (CAGRs) of 7% and 15%, respectively. With an enterprise value estimated at $37.9 billion, the stock trades at 11 times this year’s sales and 20 times its adjusted EBITDA—a valuation that seems manageable considering its growth trajectory.

If Cameco successfully reaches CIBC’s price target of $95, it would imply a pricing of approximately 16 times and 29 times this year’s revenue and adjusted EBITDA. While this would not classify as a bargain, the long-term growth potential may justify such valuation metrics. Thus, many analysts conclude that Cameco presents an attractive investment opportunity even as it hovers near its historical highs.

However, investors are advised to exercise due diligence. Although Cameco has impressive growth prospects, interest rates and market conditions can influence stock performance. Moreover, it’s essential to evaluate other investment alternatives. Notably, while Cameco has its merits, it was not included in a recent list of the top 10 stock recommendations by the Motley Fool’s Stock Advisor team, which suggests that there might be other opportunities that could yield even more significant returns.

In summary, Cameco’s robust market position, strategic partnerships, and favorable uranium demand dynamics create an optimistic outlook. For investors seeking opportunities in the expanding nuclear sector, buying Cameco stock while it’s below $95 could be a prudent decision. As always, individual investment objectives and risk tolerances should guide your final decision.

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