Cameco Shares Gain 6% Despite Q3 Earning Miss: How to Play the Stock?

Shares of Cameco CCJ have gained 6% since it reported third-quarter 2024 results on Nov. 6. CCJ incurred a loss of 1 cent in the quarter against earnings of 24 cents in the year-ago quarter. However, revenues improved 23% year over year. Cameco missed the Zacks Consensus Estimate for revenues and earnings.Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.The CCJ stock closed at $54.41 yesterday, 7% below its 52-week high of $54.41 and 53.6% above its 52-week low of $35.43. Year to date, Cameco shares have gained 26.9% against the industry’s 15.9% decline. Meanwhile, the broader Zacks Basic Materials sector has moved down 15.9%, while the S&P 500 has climbed 26%.Cameco’s YTD Performance Image Source: Zacks Investment Research Its peer NexGen Energy NXE has risen 8.6% year to date, while Energy Fuels UUUU has declined 6.7%.CCJ Shares Trade Above 50-Day & 200-Day SMA Image Source: Zacks Investment Research The CCJ stock is currently trading above its 50-day and 200-day moving averages, indicating strong investor confidence and a favorable market outlook.Let us delve deeper into Cameco’s third-quarter results and long-term prospects before assessing whether to buy, hold or sell the stock.Decoding Cameco’s Q3 ResultsRevenues improved 23% year over year to $528 million (CAD 721 million) on higher sales volumes but fell short of the Zacks Consensus Estimate of $551 million. The company incurred a loss of 1 cent per share in the quarter, missing the Zacks Consensus Estimate of earnings of 26 cents.The weaker-than-expected results were attributed to normal quarterly variations in sales volumes, delayed sales at joint venture Inkai due to the ongoing transportation challenges, and the impacts of purchase accounting for Westinghouse. Cameco produced 4.3 million pounds of uranium in the July-September period, 43% higher than the year-ago quarter. It sold 7.3 million pounds of uranium compared with 7 million pounds in the third quarter of 2023. The average realized uranium price rose 14% year over year to $60.18 per pound. Higher sales volumes and prices led to a 23% improvement in uranium revenues. The segment’s gross profit rose 11% and adjusted EBITDA was up 7%. In Fuel Services, production volume surged 60% year over year to 3.2 million kgUs and sales volume rallied 67% to 3.5 million kgUs. The Fuel Services segment witnessed a 40% rise in revenues, aided by higher volumes, partially offset by a 13% decline in average realized prices.CCJ Plans to Double Dividend Payout by 2026Cameco hiked its annual dividend by 33% to 16 cents per share. The company is planning to implement a dividend growth plan of at least 4 cents per share each year through 2026, subject to its board’s approval. This will likely take its annual dividend to 24 cents per share by 2026, doubling from the 2023 payout.Cameco’s Solid Balance Sheet Enables Growth InvestmentAt the end of the quarter, Cameco had C$197 million ($141 million) in cash and cash equivalents, C$1.3 billion ($0.9 billion) in long-term debt, and a C$1-billion ($0.7 billion) undrawn credit facility.CCJ plans to maintain the financial strength and flexibility necessary to boost production and capitalize on market opportunities. Work is underway to extend the mine life at the Cigar Lake to 2036. Cameco is also increasing production at McArthur River and Key Lake from 18 million pounds to its licensed annual capacity of 25 million pounds (100% basis).Inkai Affects Cameco’s Projected Production NumbersTo reflect the consistent run rate at the Key Lake mill, the uranium production outlook for 2024 has been raised to 37.0 million pounds. Of this, Cameco’s share will be 23.1 million pounds, higher than the previous expectation of 22.4 million pounds for the year. This suggests improvement from Cameco’s share of 17.6 million pounds of uranium production reported in 2023.However, the production outlook for joint venture Inkai has been lowered by 0.6 million to 7.7 million pounds (on a 100% basis) of uranium due to the ongoing acid supply challenges in Kazakhstan.Cameco, however, maintained expectations of uranium deliveries at 32-34 million pounds for 2024. It guides 2024 revenues at $3.01-$3.16 billion (previously $2.85-$3 billion). Its share of Westinghouse’s 2024 adjusted EBITDA is expected between $460 million and $530 million compared with the earlier stated $445-$510 million.Kazakhstan changed the Mineral Extraction Tax (MET) for uranium, effective 2025. Per the new code, the MET rate will increase from 6% to 9% in 2025. From 2026 onward, the tax will be based on production and spot prices.Earnings Estimates for CCJ Instill OptimismThe Zacks Consensus Estimate for CCJ’s earnings in fiscal 2024 has moved south over the past 60 days. This indicates the impacts of the challenges at Inkai. However, the estimate for fiscal 2025 has moved up in the same period, as shown in the chart below. Image Source: Zacks Investment Research Despite the downgrades, earnings estimates for fiscal 2024 suggest year-over-year growth of 21%. The same for fiscal 2025 indicates a year-over-year rise of 132.5%. Image Source: Zacks Investment Research Cameco Offers Industry-Leading ReturnsCCJ’s return on equity — a profitability measure of how prudently the company utilizes its shareholders’ funds — is 3.33%, higher than the industry’s 2.07%. Image Source: Zacks Investment Research Cameco’s Valuation Looks StretchedThe Cameco stock is trading at a forward price-to-sales ratio of 9.67 compared with the industry’s 1.39. It is above its three-year median of 6.76. Image Source: Zacks Investment Research The company is, however, cheaper than peer Uranium Energy’s UEC price-to-sales ratio of 35.57.Cameco to Ride on Global Focus on Nuclear EnergyGeopolitical events, energy security concerns and the global focus on the climate crisis amid rising low-carbon energy demand have created tailwinds for the nuclear power industry. Given CCJ’s low-cost and high-grade assets, and diversified portfolio spanning the nuclear fuel cycle, it is well-poised to capitalize on these trends. It is the second-largest uranium producer, accounting for 16% of 2023 global production. Through 2024-2028, the company has contracts for average annual deliveries of 29 million pounds of uranium per year. These offer CCJ a buffer against potential declines in uranium prices.Should You Buy CCJ Stock Now?Even though Cameco’s earnings were lower than expected in the third quarter, the earnings growth projections and its strategies to initiate a regular dividend growth plan hold promise. Supported by a strong balance sheet, the company is making investments to boost its capacity. Investors holding CCJ shares should continue to retain the stock in their portfolios to benefit from the solid long-term fundamentals.However, new investors can wait for a better entry point, considering the ongoing challenges at Inkai, the impacts of the new MET imposed by the Kazakhstan government and CCJ’s premium valuation.Cameco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Cameco Corporation (CCJ): Free Stock Analysis Report Energy Fuels Inc (UUUU): Free Stock Analysis Report Uranium Energy Corp. (UEC): Free Stock Analysis Report NexGen Energy (NXE): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks