Cameco Corp.
(CCO-T, CCJ-N) C$51.37 | US$37.57
Uranium Price Deck Increased; ACTION LIST BUY Maintained
Event
We have increased our uranium price deck.
Impact: POSITIVE
We are increasing our long uranium price forecast to US$75/lb (from US$65/ lb), which we see as the required incentive price to bring shuttered brownfield production and some select greenfield projects into production to meet growing uranium demand. Our higher long-term price also reflects the reality of capex and opex inflation over the past several years. Concurrently, we are also increasing our price forecast for 2023-2027 by ~21% on average (Exhibit 1), reflecting our view that near-term pricing will benefit from tighter supply-demand dynamics.
Cameco has two Tier-1 uranium mines in production, with multiple available avenues over time to further increase production and extend mine lives at its current operating mines, brownfield and greenfield projects. Finally, we also expect that CCO's pending acquisition of a 49% interest in Westinghouse Electric Corporation (WEC) will further solidify and strengthen the company's position as a leading nuclear-fuel supplier to free-market nuclear utilities.
TD Investment Conclusion
We are maintaining our ACTION LIST BUY recommendation and increasing our target price to $70.00 (from $55.00). We have increased our target multiples to 2.0x NAV (previously 1.7x, 50% weighting) and 18.0x EV/2025E EBITDA (previously 17.0x, 50% weighting). Cameco remains one of the very few ways to invest in a publicly traded producing uranium miner, and, in our view, it is the most attractive way for investors to add uranium leverage to their portfolios. Cameco has two Tier-1 uranium mines in production, with multiple available avenues to further increase production and extend mine lives at its current operating mines, brownfield and greenfield projects. Finally, we also expect that CCO's pending acquisition of a 49% interest in Westinghouse Electric Corporation (WEC) will further solidify and strengthen the company's position as a leading nuclear-fuel supplier to free-market nuclear utilities.
Given Cameco's unique position in the uranium market and the positive outlook for uranium and the nuclear sector in general, we believe that target multiples at the higher end of the company's historical range are justified. During the 2005-2007 uranium bull market, based on our estimates, Cameco's P/ NAV multiple reached a peak of ~2.3x and its EV/EBITDA multiple exceeded 22x.