Cameco and Uranium One Negatively Affected by Lower Uranium Prices

Uranium prices will improve over the near term, according to UBS analyst Brian MacArthur, but maybe not soon enough for the likes of Cameco Corp. (CCJ) and Uranium One Inc. (SXRZF.PK) investors.

In a note to clients Mr. MacArthur said:

Global power markets remain highly unstable in our view, with future supply of thermal coal and LNG uncertain. Given this and the growing pressure on carbon emissions and the potential for its increased regulation, we believe the relative attractiveness of uranium as a fuel source will continue to build over time.

However, with uranium prices tracking back to $75 per pound, UBS revised downward its uranium price forecasts for 2008 from $95 to $88 and for 2009 from $150 to $100. It's not until 2010 that UBS predicts investors will begin realizing the benefits of uranium's strong long-term fundamentals as prices hit $110, up from UBS previous estimate of $50 for that year.

Based on UBS' new uranium prices, Mr. MacArthur decreased his 2008 earnings per share estimate for Cameco from C$2.48 to C$2.35, and his 2009 EPS estimate from C$2.92 to C$2.47. His price target on the stock falls from C$53 to C$49, and his "buy" rating remains unchanged.

The analyst also lowered his earnings estimates and price target on Uranium One while maintaining his "buy" rating on the stock. His 2008 EPS forecast goes from C$0.22 to C$0.18 and his 2009 forecast moves down from C$1.26 to C$0.74. His Uranium One price target is now C$10.50, down from C$12.50.