Cameco Corp (USA) (CCJ)

Cameco has had an apparent fall from grace. This stellar performer that once traded for only $3 a share now sits at $40. The problem is that not too long ago it was at $58 and many of the investors who put their hot many in at the end of a run were disappointed. No one could see the decreased demand for uranium going forward, but the price has been pushed downward. Many investors believe that uranium is far to risky as not many know the entire uranium story and even fewer have a grasp on supply and demand of the commodity. Cameco is by far a much less risky investment when looking at the group as a whole. Even as the spot price (which CCJ has very little exposure to) decreased from $136 to $95 per pound, they raised their dividend 20% which is the fifth increase in six years. They also increased their share repurchase by $400 million.











The price of uranium is key to Cameco, but they are anchored by legacy contracts. They developed these contracts to protect their downside with respect to uranium production. Not too long ago, the United States and Russia decided to begin dismantling their huge nuclear weapons arsenal. By doing this, they completely crushed the price of uranium on the market. The legacy contracts provided utilities with a supply of uranium and Cameco was afforded limited downside to pricing. It has also functioned in limiting upside. As many uranium companies saw unbelievable growth, Cameco lagged. With the recent decrease in spot price the same thing was seen although reversed, as their stock has held up well and companies like URRE saw their stock price decrease much more rapidly.











Even with the decrease in stock price Cameco had a great year. They saw their cash from operations increase 92%. Revenue was an all time high increasing by 26%. Net earnings increased 11%, but were hit hard by increased costs. Adjusted net earnings were up 120%, and was also an all time high. Much of this was attributed by the uranium spot price doubling. Their realized price increased 34%, as shown through the legacy contracts. These gains were also seen with decreases in production across the board. Uranium concentrate was down 5%, fuel services decreased 16%, electricity was down 9% and gold production decreased 5%.











When looking at nuclear power it has grown exponentially through out the world as the United States has found other methods. It is the third leading generator of electricity behind coal and hydro at 16%. Cameco can meet any upcoming need as they look to increase uranium production by 80% in the next 8 years. The best way to understand exactly how much uranium production will have to increase is to look at current nuclear reactors and how many are planned or being built through 2017. Currently, there are 439 nuclear reactors and 93 are being planned or started to be built in the next 10 years. The United States is planning only five, but China has 23 on the books while India is looking to build 15.











Cameco hit a double top breakout on May 8th, and has a bullish target of $53 with respect to their current trend. It looks like the stock will first take resistance at $50 so I would take profits at $49. Look for at least an 8 million volume day to break resistance and become support. The 50 day simple moving average has been broken.











CCJ currently trades at 19 times forward earnings. There are only two analysts covering the stock and I believe this will be a breakout year. Last year earnings were only $.14, which was a large miss. This was do to shipment dates with respect to their fuel services. I believe this quarter will be different as the company was reeling from one problem after another this year and they will crush earnings. I am looking for $.40 per share on increased gold prices and uranium production. Plus, the legacy contracts had an immediate increase in pricing for uranium at the beginning this year not currently reflected in share pricing. Full year expectations should be even better with more production coming on line in the third quarter.