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There is a "sufficient risk" that uranium giant Cameco Corp. (CCJ) will disappoint the market when it reports fourth quarter results on Feb. 13th, according to Blackmont Capital analyst George Topping. He even suggested that investors trade out of Cameco and into Uranium Participation Corp. (OTCPK:URPTF) until after the earnings come out.

He noted that Cameco has a history of falling short of expectations on earnings, and that the stock tends to drop right afterwards. In the past three quarters, in fact, the stock has dropped between 3% and 12% within two days of the quarterly release. It is also very difficult to project the company's results because there is little transparency on sales and costs, he wrote in a note.

For the fourth quarter, Mr. Topping predicted earnings of C$0.37 a share, which is below the consensus analyst estimate of C$0.51 (though the range of projections is huge). He also assumed sales of 10 million pounds of uranium (slightly below the guidance of 10.4 million) and production of 5.7 million pounds (compared to guidance of 6.1 million). He also predicted a charge of C$10-million to C$20-million tied to layoffs at its facility in Port Hope, Ont.

"While an investment in Cameco ought to be viewed as long term, the stock does tend to react to quarterly results," he wrote.

It is difficult to predict quarterly results but, based on past performance, a disappointment is more likely than not. Even if results were to come in ahead of our expectations, we believe the risk of the stock running away from investors is very low. We believe a good strategy would be to sell Cameco ahead of its earnings but remain invested in the sector through Uranium Participation Corp. The trade could be unwound on any post-earnings weakness.

He has a "hold" rating on Cameco shares and a target of C$28.00. That is based on a multiple of 0.8 times his net asset value forecast of C$35.00 a share.

Source: Sufficient Risk That Cameco's Earnings Will Disappoint - Blackmont