Shares of Canadian nuclear fuel producer Cameco (CCJ 1.35%) were up 6.1% through 11:45 a.m. ET on Friday, helped by a decision by the U.S. government.
As Bloomberg reported yesterday, the government wants to buy $3.4 billion worth of nuclear reactor fuel and is soliciting bids from uranium miners. Cameco, the biggest publicly-traded pure play on uranium production, is a logical beneficiary.
Why America wants to "buy local" with uranium
In 2022, 24% of America's uranium fuel came from a less-than-optimal source: the Russian Federation. That was cut in half last year, but if you factor in uranium supplied from Russia's next-door neighbors -- Kazakhstan and Uzbekistan -- the U.S. still gets nearly half its uranium from sources that could be cut off at an inconvenient time.
Trying to get ahead of this problem, the U.S. wants to encourage uranium production closer to home and wean U.S. nuclear power plants off their dependence on Russia. As much as $2.7 billion of the $3.4 billion that the government is offering to spend is money that will be diverted from buying Russian uranium to buy locally sourced nuclear fuel.
Is Cameco stock a buy?
Does this proposed uranium purchase, in and of itself, make Cameco stock a buy? Not necessarily.
While $3.4 billion is a nice chunk of change, and more than a year's revenue to Cameco, it's not clear how many years the spending will stretch over. Nor will Cameco win all the contracts on offer. Bloomberg notes that New Mexico's Urenco, Maryland's Centrus, and multiple other uranium producers will also be competing for these supply contracts.
Also worth pointing out: Investors have not failed to notice uranium's increasing popularity. Cameco stock is already up 85% over the past year and trading for a sky-high 126 times trailing earnings.
It's going to have to sell an awful lot of uranium, at awfully high profit margins, to justify that price.
