Four Reasons For A Positive Outlook On Cameco

Shares of Cameco Corp. (CCJ) offer "excellent upside potential from current price levels," according to RBC Capital Markets analyst Fraser Phillips. But, he still cut his price target on the stock.

Mr. Phillips reduced his target to C$63 a share from C$70 a share as RBC lowered its uranium price outlook. Its forecasted prices for 2007 and 2008 are now US$100 and US$110 a pound, down from US$120 and US$145 a pound, respectively.

But he still rates Cameco a "top pick." As uranium prices corrected over the summer and Cameco came out with a number of negative announcements, the stock gave up all its gains of the last 20 months.

"While it will take some time for management to regain investor confidence following these problems, we believe this represents a buying opportunity," he wrote in a note to clients.

He lists four reasons for the positive outlook on Cameco:

realized prices and earnings are expected to increase strongly over the next five years,

Cigar Lake will likely go into production,

the deal with the Kyrgyz government over Centerra Gold Inc. could lead to an increased dividend or share buyback (the company unveiled a C$750-million buyback program Thursday), and

the contribution from Bruce Power should increase modestly over the next three years.

"Longer term, there is the potential for a significant expansion at Bruce," he added.

CCJ 1-yr chart: