3 Reasons Cameco (TSX:CCO) Is Still a Good Buy Despite a Disappointing Q1

Cameco Corp (TSX:CCO)(NYSE:CCJ) stock has been undervalued for a while, but that might change now that the outlook for the company looks to be getting better.

| More on:

Cameco (TSX:CCO)(NYSE:CCJ) is down after releasing its latest quarterly results. And while investors might be disappointed in the results and likely tempted to keep their fingers on the sell button, there are three reasons to remain optimistic about the stock.

Company remains optimistic for the future

In the earnings release, Cameco president and CEO Tim Gitzel suggested that there’s a lot of promise for the future: “We see growing support for nuclear, and with more than 50 reactors under construction, demand is certain and predictable. However, supply is uncertain and declining. We have seen meaningful production cuts, and reductions in producer inventories, which has led to increased demand for uranium in the spot market from producers and financial players.”

The spot price for uranium seems to support the idea that things are getting better, as prices are well above where they were over the past two years. It’s an encouraging sign that we’ve seen over the past six months that could help lead to more stability for Cameco and other uranium companies. However, before investors get too excited, they’ll likely want to see that translate into some stronger results first.

Despite the optimism, the company is not yet ready to restart operations at its McArthur River/Key Lake location, where it suspended activity back in 2017.

Fuel service revenue has been growing

Although it is still a fraction of its uranium-related revenues, Cameco has seen sales volume rise for fuel services. In Q1, volumes were up 25% and sales from the segment had increased by 30% year over year. While it added just $19 million to the top line, if Cameco can continue to work on developing this segment that will help decrease its overall exposure to uranium prices. The average realized price for fuel services actually went up 2% from last year compared with a 25% drop in uranium prices.

Less uncertainty facing the company today

Prior to its earnings release, Cameco had announced on April 30 that it had received a favourable result from its tax dispute with the Canada Revenue Agency (CRA). Cameco will get back $10.25 million in legal fees and it will also get an amount, which is still to be determined, related to its disbursements.

The CRA alleges that Cameco was avoiding taxes in prior years, and that could have resulted in the company being saddled with a bill of more than $2 billion. Although the bullet has been dodged for now, the CRA is able to appeal, and Cameco believes it will take a couple of years to determine the outcome of that.

While Cameco is still not entirely out of the woods, the news should allow investors to breathe a little easier in the short term, knowing that there isn’t going to be a big expenditure relating to this come down in the foreseeable future.

Bottom line

Cameco didn’t have a great result for investors to get excited about this past quarter, but it’s still a good long-term buy, and there are signs that finally, things might be getting better for the company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »