Pros Pick Their Top Nuclear Power Play

U.S. power needs are set to double in 2024 from the prior year thanks to data centers for cloud and AI.

Our insatiable appetite has forced Michigan to consider reopening a nuclear plant mothballed in 2022.

While renewable energy production continues to climb, it’s not enough to feed the beast.

Many states are looking once again to nuclear as a source of high-output, consistent power.

Consequently, the price of uranium is within 20% of its all-time high, which was set earlier this year.

With bans on Russian exporters and Azerbaijan set to fall short, the tight supply could get even tighter.

Naturally, producers like Cameco (CCJ) have become a top choice amongs financial pros.

According to our TrackStar data, money managers sought out the stock 20x more often than its closest competitor.

Yet, the stock is off its all-time highs by 34% and is down 14% year-to-date.

So, does that create a buying opportunity?

Cameco’s Business

Nuclear power’s resurgence has supercharged Cameco Corporation, a uranium titan fueling the world’s clean energy revolution. 

This Canadian powerhouse doesn’t just mine uranium – it dominates the entire nuclear fuel cycle.

From Saskatchewan’s uranium-rich Athabasca Basin to Kazakhstan’s vast steppes, Cameco extracts the raw material that keeps reactors humming worldwide. 

The company’s tentacles stretch further, with conversion facilities in Ontario and a hefty stake in nuclear services giant Westinghouse.

Cameco’s business splits into three key areas:

• Uranium (84% of revenues) – Digging up and selling the nuclear treasure
• Fuel Services (16% of revenues) – Transforming raw uranium into reactor-ready fuel
• Westinghouse – A separate profit center providing cutting-edge nuclear tech and services

The latest quarter saw Cameco’s profits skyrocket, with earnings nearly tripling to $36 million. Surging uranium prices and increased sales volumes supercharged the company’s performance.

Cameco’s $2.8 billion investment for a  49% stake in Westinghouse Electric Company, a reactor tech heavyweight, aims to supercharge its position across the entire atomic value chain. 

The move promises to unlock new revenue streams, from cutting-edge reactor designs to lucrative maintenance contracts. 

With countries worldwide clamoring for carbon-free power, Cameco’s Westinghouse deal could prove to be the fuel that propels the company into a new era of atomic dominance.

Financials

Source: Stock Analysis

Revenues climbed alongside the price of uranium, with sales more than doubling since 2020.

Consequently, gross margins improved, feeding down to the bottom line and cash flow.

With very little debt, Cameco easily covers its 0.24% dividend yield.

The rest of its latest cash haul from the past few years was put towards its investment in Westinghouse.

Valuation

Source: Seeking Alpha

Cameco isn’t a cheap stock by most measures.

It trades at nearly 130x forward earnings and 28x forward operating cash flow.

However, that’s better than all its peers save Centrus Energy (LEU), which trades at lower trailing 12-month and forward P/E ratios but a far worse price-to-cash ratio.

Growth

Source: Seeking Alpha

Nearly all these uranium companies have benefited from the higher commodity price. Energy Fuels (UUUU) has seen particularly robust revenue growth, while Uranium Energy (UEC) sees sales nearly doubling this year.

Cameco isn’t putting up those kinds of numbers. Yet, it is still expected to see +20% revenue growth this year. Plus, it delivered far better profitability and free cash flow growth than its peers.

Profitability

Source: Seeking Alpha

Cameco’s margins aren’t the highest. But it’s only one of two profitable companies on this list, Centrus being the other.

However, its returns on assets, equity, and total capital, none of which break 10%, leave a lot to be desired. 

Our Opinion 6/10

This is another tough stock to call.

On the one hand, Cameco is the best run of the group and certainly benefits from higher uranium prices.

However, it’s not set to scale with demand, putting a cap on what it can actually achieve.

While there could be an explosion in uranium prices, they could just as easily collapse.

For us, the stock doesn’t offer enough reward for the risk.

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