Targets Raised With the fundamental outlook for the uranium market continuing to improve, Scotia Capital analyst Orest Wowkodaw increased this price forecast, leading him to raise his forecast for Cameco Corp., believing “the inflection point in financial performance has arrived.”
“We have updated our U308 supply-demand outlook,” he said. “We now forecast a larger 2023-2030 average market net deficit of 20.0M lbs per annum (vs. 15.6M lbs pa previously), largely reflecting downgrades to our supply expectations in Niger (Arlit mine and Dasa project) following the recent coup, and to a lesser extent, in Canada (CCO’s operations). On average, our forecast net deficit represents a substantial 10 per cent of annual demand. Although uranium prices have improved (spot and term prices are US$74/lb and US$61/lb), we envision an environment of higher prices ahead based on tightening fundamentals. As a result, we have increased our 2023E-2027E U308 price deck to US$58/lb, US$75/lb, US$80/lb, US$85/lb, and US$90/lb (or by 27 per cent per annum) and our long-term price to US$75/lb (vs. US$65/lb previously). Moreover, we would not be surprised to see spot prices of more than US$100/lb in the years ahead (perhaps challenging the 2007 record high of US$136/lb).”
Increasing his earnings projections though 2025 as well as his net asset value estimate, Mr. Wowkodaw hiked his target for Cameco shares to Street-high $70 from $54, reiterating a “sector outperform” rating. The average target is $57.15.
“We rate CCO shares SO based on improving fundamentals driven by the dual Western World agendas of decarbonization and energy independence,” he said. “Given heightened global geopolitical risks, we anticipate CCO and WEC to be prime beneficiaries of Russian replacement demand for U3O8 and nuclear services. Our revised 12-month target ... is based on a 50/50 weighting of 20.0 times 2025 estimated EV/EBITDA and 2.0 times our 8-per-cent NAVPS. The higher multiple reflects scarcity in a rising price environment. CCO remains a Top Pick.”
Elsewhere, Raymond James also raised his uranium price forecast for 2023 and 2024 as well as its long-term assumption (to US$75 per pound from US$65).
“We believe the combination of growing uncovered demand over the next few years (which is a function of consumption plus inventory policy), increased security of supply concerns given the concentrated supply and current geopolitical situation, long lead times for greenfield production and the fact many greenfield projects would need higher uranium prices, and growing financial interest could lead to higher uranium prices; we have increased our uranium price forecasts,” said analyst Brian MacArthur. “Spot uranium prices continue to rise but unlike 2022 when some of the price move reflected financial players, this year we believe the price move is more reflective of end user demand. While our long-term price increase reflects our updated estimate of incentive prices, we note historically prices can trade through incentive prices especially if security of supply issues occur because shutting down nuclear base load electricity is not an attractive/viable option and the cost of uranium is only a small part of the operating cost of a nuclear reactor. We have also increased the target prices for our uranium coverage (CCO, DML, NXE) given these higher uranium price forecast.”
His target for Cameco rose to $66 from $56 with an “outperform” rating.