BMO Still Bullish on Cameco

Shares of Cameco Corp. (CCJ) have more than doubled since bottoming out late last year, but BMO Capital Markets analyst Edward Sterck is still bullish. He initiated coverage of the stock with an "outperform" rating and a price target of C$35.00 a share.

He wrote in a note to clients:

Cameco's leading role in uranium production and diversified nuclear asset base makes it well-placed to capitalize on forecast growth in the nuclear industry over the coming years and decades.

Mr. Sterck pointed out that Cameco's long-term contract book protects it from any further downside in uranium prices, and available liquidity of about C$1.3-billion should allow the company to take advantage of any opportunities that arise.

The company also has an enviable organic growth pipeline, as he noted that production is expected to double by 2015 (though getting Cigar Lake online continues to be a challenge). Earnings growth of 32% is projected in 2010.

He also wrote that Cameco should sell double the uranium produced by Paladin Energy Ltd. (PALAF.PK) and Energy Resources of Australia Ltd. from 2013 onwards, and boasts industry-low cash costs. The stock is expensive compared to peers, but Mr. Sterck wrote that larger companies typically trade at higher multiples, and investors may be willing to pay a premium for Cameco's non-mining, low-risk revenue streams (like Bruce Power in Ontario).

His target of C$35.00 a share is based on a multiple of 1.8 times his net present value estimate of C$19.35 a share.