Monday, June 20, 2011
CAMECO CORPORATION: URANIUM DEMAND STILL EXISTS?
To be perfectly honest, uranium demand is going nowhere soon and there still remains a large demand for uranium. Which brings us to our stock of the day: Cameco Corporation.
First some basics. Cameco Corporation (CCJ) is a company engaged in the exploration, mining, refining and conversion of uranium for energy with a market capitalization of $9.16 billion. The stock has a 52 week high of $44.81 and a 52 week low of $20.70. The stock was trading at $37.38 on March 11th, before the earthquake, and fell to $28.10 on Marth 17th as Fukishima became world news.
Let's take a look at some of the pros and cons of Cameco before we can consider it a buy:
Pros: (via Q1 2011)
- P/E of 19.56.
- Debt-equity-ration of .22.
- 40.8% gross profit margins.
- 1.7% dividend yield.
- Net operating cash flow of $266 million, up 99% yoy.
- 5 year dividend growth rate of 28%.
- Net income fell 35.8% yoy.
- Revenue fell 6% yoy.
- Stagnant EPS growth.
- Growing pessimism/skepticism for future uranium demand due to Fukishima.
Cameco is the second largest uranium producer in the world and they currently produce 16% of the world's supply of uranium. Worldwide uranium energy demand remains strong and it's estimated China will increase uranium demand seven-fold by 2020. The earthquake and tsunami in Japan will not stop the demand for uranium in the future; in the next 8-10 years uranium demand is estimated to be 400 million pounds and currently only 110 million pounds of uranium is produced.
The company had a rough quarter and the events in Japan only compounded the situation. Net income and revenue both fell compared to the previous year's quarter. Yet Cameco still looks like an attractive option. It sports a 1.7% yield and has a P/E of 19.5. It also has very little debt on the books and some of the highest profit margins among its peers.
While many uranium stocks are in the process of mining or have not even begun mining, Cameco has several sites that produce large quantities of uranium. They are also improving their sites to increase production to meet the growing demand in the future; Cameco has a goal of doubling uranium production within the next 8 years.
To conclude, shares of Cameco look like they are a real bargain right now. The company has solid infrastructure in place and they produce much of the world's uranium. As demand continues to grow, Cameco also looks poised to benefit in the future from increased demand. The events in Japan may have caused many to reevaluate the uranium industry, yet the industry is not going away for the foreseeable future. Expect Cameco to rise from its current slump and do well in the future.