Cameco Corporation (USA) Earnings: Will Uranium Rise Again?

On Tuesday, Cameco (CCJ 2.94%) will release its quarterly report, and investors have finally started to feel a little more optimistic about the prospects for the uranium producer. After years of negative sentiment from the Japanese nuclear disaster at Fukushima Daiichi, the nuclear power industry looks like it might be on the mend. As Exelon (EXC -0.29%), Southern Company (SO 0.37%), and other electricity generators both in the U.S. and around the world continue to look to nuclear plants for power needs, Cameco will see ongoing demand for uranium to power those plants.

Not so long ago, investors looked at Cameco as having a huge growth opportunity as many advocates argued that nuclear power was far more environmentally friendly than carbon-producing fossil fuel energy production. Yet the Fukushima Daiichi disaster turned that sentiment completely around, leading entire nations to commit to ending their nuclear power programs in the interest of promoting greater safety. Does Cameco stand a chance under those challenges? Let's take an early look at what's been happening with Cameco over the past quarter and what we're likely to see in its report.

Highly enriched uranium. Source: Department of Energy, via Wikimedia Commons.

Stats on Cameco

Source: Yahoo! Finance.

Can Cameco earnings rebound this quarter?
Analysts have once again reduced their near-term views on Cameco earnings, cutting first-quarter estimates in half. But despite a 12% reduction in 2014 projections, analysts have gotten slightly more optimistic about 2015. The stock has remained flat since late January.

Cameco's fourth-quarter earnings report started things off on a sour note, as even record production wasn't enough to dispel worries about its long-term forecast. For the quarter, earnings soared by more than 50%, although one-time writedowns played a role in those net income gains. Yet even though production jumped 15%, leading to an overall revenue rise by the same percentage, Cameco eliminated its 2018 supply production target of 36 million pounds. Citing the unpredictability of "this period of uncertainty," it wants to maintain the ability to respond to changing conditions without having to modify its long-term guidance, and investors took that as being a sign that Cameco might not expect a full recovery as soon as they had hoped.

Source: Wikipedia.

Cameco has faced problems on two fronts. Uranium demand has fallen due to Japan's shutdown of its nuclear plants, cutting uranium prices in half compared to where they traded before the disaster. At the same time, uranium users like Exelon and Southern Company haven't enjoyed the cost advantage from nuclear power that they had grown accustomed to having, as rock-bottom natural gas prices made fossil fuel-fired electricity generation more cost-effective, spurring conversions to natural gas.

Yet in the longer run, demand for nuclear power appears strong. China, India, South Korea, and Russia are all maintaining a focus on nuclear energy, and those emerging powerhouses are significant enough to have a positive impact on global demand. As new power plants come online in those countries, low uranium prices could finally give way to a more favorable supply demand trade-off for Cameco and other uranium producers.

A big vote of confidence for the nuclear power industry came in late February, when the Japanese government released an energy plan in which nuclear power still plays a vital role. Given the attitudes in Japan about nuclear power, the move represents a big positive for uranium generally and for Cameco in particular. Still, nuclear power makes sense for Japan, given its lack of plentiful fossil fuel natural resources.

In the Cameco earnings report, watch to see how the uranium producer plans to respond to improving conditions in the industry. If long-term prospects keep looking brighter, then Cameco could finally start growing more strongly -- and that could be a big shot in the arm for long-struggling shareholders.

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