After the Fukushima nuclear power accident last year, fears of the danger of nuclear power plants spread from the public to the investment community. Predictably, uranium stocks sold off and haven't staged much of a recovery to pre-Fukushima highs. However, now may be a good time to take a closer look at uranium stocks. According to a recent Barron's article, "uranium prices are poised to steadily increase over the next few years… supply is projected to decline just as developing economies turn to nuclear for their expanding electricity needs." Further, an analysts notes in the article that "most analysts expect the price of uranium to rise from current levels of $50 to $65 [a pound] to $70 a pound over the next two years." This increase in the price of uranium should be a boost for uranium stocks.
Cameco (NYSE:CCJ) is the largest pure play on uranium in the market with a market cap of close to $9 billion. The upside here is significant as the stock was trading for over $40 a share prior to Fukushima and now sits just over $20. The valuation metrics support the thesis that the stock has room to run from here as all three are in agreement that the stock is undervalued. Below is an in depth look at the valuation metrics and stock chart.
Valuation: Cameco's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Cameco's current P/B ratio is 1.7 and it has averaged 3.1 over the past 5 years with a high of 6.5 and low of 1.4. Cameco's current P/S ratio is 3.5 and it has averaged 5 over the past 5 years with a high of 10.1 and low of 2.4. Cameco's current P/E ratio is 0 and it has averaged 23.3 over the past 5 years with a high of 51.3 and low of 9.
Price Target: The consensus price target for the analysts who follow Cameco is $31. That is upside of 40% from today's stock price of $21.9 and suggests that the stock is undervalued at these levels. This also suggests that the stock has significant upside and is an attractive opportunity at these levels.
Forward Valuation: Cameco is currently trading at about $22 a share with analysts expecting EPS of $1.62 next year, an earnings increase of 32% y/y, for a forward P/E ratio of 13.5. Taking a look at the company's publicly traded comparisons will give us a better idea of the stock's relative valuation. Uranium Energy (NYSEMKT:UEC) is currently trading at about $3 a share with analysts expecting EPS of $0.14 next year for a forward P/E ratio of 20. Uranerz Energy (NYSEMKT:URZ) is currently trading at about $2 a share with analysts expecting EPS of $0.04 next year for a forward P/E ratio of 47.5. USEC (USU) is currently trading at about $1 a share with analysts expecting EPS of $0.24 next year for a forward P/E ratio of 3.6. The mean forward P/E of Cameco's competitors is 23.7 which suggests that Cameco is undervalued relative to its publicly traded competitors.
Earnings Estimates: Cameco has beat EPS estimates 1 times in the past 4 quarters. The company's EPS figures have come in between -10 cents and 24 cents from consensus estimates or about -32.3% to 61.5% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Price Action: Cameco is down 23.6% over the past year, underperforming the S&P 500, which is up 5.4%. Looking at the technicals, the stock is currently below its 50 day moving average, which sits at $22.58 and above its 200 day moving average, which sits at $21.37.