The uncertainty in the uranium market is affecting the industry as a whole. But an interesting thing to note is that, with better operational excellence and strategic initiatives in the past, Cameco (CCJ, Financial) ended fiscal 2014 on a strong note. Despite challenges in the uranium market the company managed to deliver solid results meeting its guidance.
With such a performance in the recently reported quarter, Cameco is now focusing on achieving better results in the long term and for this it is now putting efforts to ramp up its performance. Let us have a look at the overall uranium market as well as Cameco’s position in comparison to its peers.
What's driving the performance?
The key reason behind Cameco’s success despite the soft market is its ability to adapt to change. The company has always been flexible in responding to changing market conditions. For 2015, Cameco is focusing on various initiatives to improve its profitability. It is now mainly focused on the top performing assets and with this it is thinking to ramp up its efficiency. On the other hand it cannot be denied that the uranium market is in the downtrends and the companies are finding it difficult to maintain their profitability. Still the company is seeing positive growth trends in future.
Cameco is having aggressive investment plans under which it is now investing billions of dollars in the reactor construction which are in need of uranium. In addition, Cameco thinks that the demand for Uranium will grow in the future. It has an impressive portfolio of low costs assets which it thinks will be growth drivers for it in future when market signals growing demand for Uranium in future. the management states that the company is well positioned for a better fiscal 2015.
Better times ahead
There are number of reactors restarting in 2015 which can give further opportunities to Cameco. For example reactor in Japan, two Sendai units of the front runners or the 21 reactors are also about to restart. This is not enough; Takahama units three and four also have recently received approval from regulator for restart. These are some of the positive signs that can take Cameco to a next level, at the same time the overall uranium industry looks soft. So it will be a stiff for Cameco to maintain its profitability.
This is not enough for Cameco as it is prone to other headwinds also which can obstruct its smooth flow. The main obstacle that it might face is falling share price. If we look at the five-year performance, the stock has been continuously falling and even now it is trading at the lower levels. This will be challenging for Cameco to gain market share in this soft market condition. However, the company is continually having its eyes on the reactor restarts and growth in demand for uranium in the coming years which can make its long term prospects incredibly strong.
As Cameco is seeing growth in the demand in future, it is making certain changes in its operations to align best to the changing market condition. It is maintaining its flexibility not only to respond to near term but also long term growth. In addition, Cameco also continues to prepare for expansion of McArthur River, Key Lake and it is also ramping up Cigar in order to prepare for increasing demand.
Conclusion
Now moving on to the fundamentals, the stock looks expensive with a trailing P/E of 45.88 while the forward P/E of 12.40 steady earnings growth in the near term. The profit margin of 7.73% is impressive and can help Cameco to gain some market share in near term. Since the uranium market is under pressure, we cannot expect much from Cameco. I would like to suggest the investors to see investment in this stock from side line until it shows concrete signs of gaining market share.
