Analysts Mixed on Cameco After Earnings Shortfall

Cameco Corp. (CCJ) definitely didn't wow anyone when it reported first quarter results on Tuesday, but all things considered, RBC Capital analyst H. Fraser Phillips remains confident the uranium miner still offers a solid bet for investors.

In a note to clients he wrote:

Cameco remains the leader in the uranium industry, with the largest and highest quality assets in the business.

Despite a small shortfall in Cameco's first quarter earnings per share – C$0.37 versus a C$0.40 consensus estimate – and concerns that the Inkai mine may only produce 50% of its planned 1.2-million pounds due to ongoing acid shortages, Mr. Philips told clients that Cameco's operating results have improved and its realized prices have risen sharply.

He said Cameco's realized prices and earnings are forecast to increase strongly over the next five years, with free cash flow beginning in 2008 possibly acting as a trigger to further share buybacks and dividend increases.

The analyst also foresees a modest increase in contribution from Bruce Power over the next three years and an agreement with the Kyrgyz government regarding Centerra Gold Inc. which will allow Cameco to sell off its 53% interest, as two key catalysts in the future.

Mr. Phillips maintained his "outperform" rating and reduced slightly his Cameco price target from C$49 to C$47.

UBS analyst Brian MacArthur meanwhile downgraded his rating from "buy" to "neutral," due to the stock's rapid appreciation of late, lowering his price target by C$1 to C$44.

Mr. McArthur noted that Cameco's share price has risen 20% since late March but current supply and demand forces are such that further upside seems limited in the short term.

In a research note he wrote:

While we continue to believe the long-term outlook for uranium is excellent, we note that most utilities are covered in the near-term, so there is very little near term demand and spot prices have been falling.