Future U S Nuclear Spending And Supply Discipline Will Constrain Long Term Upside

Catalysts

About Cameco

Cameco produces and supplies uranium and related fuel services for nuclear power generation and holds a significant ownership stake in Westinghouse.

What are the underlying business or industry changes driving this perspective?

• The recently announced U.S. government plan to support at least US$80b of spending on AP1000 reactors concentrates Cameco's future upside in Westinghouse. Any slippage in U.S. permitting, site selection or financing could delay equipment orders and distributions, which would weigh on earnings contribution from equity-accounted investments.
• Management is openly prioritizing supply discipline and is not willing to "ramp up production" at McArthur River or other mines without stronger long term uranium contracts. If utilities continue to hesitate on multi year commitments, Cameco may carry underutilized Tier 1 assets that cap growth in uranium segment revenue.
• Development delays at McArthur River and Key Lake and the decision not to take "heroic actions" to accelerate mine development increase reliance on market purchases, JV Inkai offtake and product loans. This could compress net margins if sourcing costs rise faster than realized prices on long term contracts.
• The industry wide focus on new nuclear to support AI, data centers and decarbonization may encourage new uranium and fuel cycle projects from competitors that utilities view as credible. If even a portion of this future supply materializes at current price levels, Cameco could face price pressure that limits growth in average realized prices and segment earnings.
• The push to standardize, sequence and simplify AP1000 and potentially AP300 build programs assumes that global supply chains can scale efficiently from here. Any bottlenecks in long lead components or enrichment capacity would likely increase project risk for Westinghouse and could defer cash distributions that management currently highlights as an important contributor to overall cash flow.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Cameco compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Cameco's revenue will grow by 4.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 10.2% today to 29.4% in 3 years time.
• The bearish analysts expect earnings to reach CA$1.2 billion (and earnings per share of CA$3.63) by about August 2029, up from CA$354.9 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as CA$2.1 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 67.4x on those 2029 earnings, down from 173.3x today. This future PE is greater than the current PE for the US Oil and Gas industry at 21.9x.
• The bearish analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.44%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The U.S. government's plan to support at least US$80b of spending on Westinghouse AP1000 reactors signals a long term build out of large scale nuclear. This could translate into a growing stream of reactor equipment work and related cash distributions to Cameco via Westinghouse, supporting earnings and cash flow.
• The U.S. government's performance based participation structure around Westinghouse is tied to actually getting multiple AP1000 projects financed, permitted and under construction. If this accelerates reactor orders in the U.S. and abroad, it could underpin a larger global fleet that relies on Cameco's uranium and fuel services, supporting revenue over time.
• Management repeatedly highlights that Cameco is an incumbent supplier with Tier 1 uranium assets, licensed storage facilities and flexible tools such as product loans and long term sourcing. These factors can help the company secure pricing premiums and maintain delivery reliability, supporting net margins and earnings.
• The conference call describes strong financial results for the first 9 months of the year, solid cash and equivalents of $779m, total debt of $1b and a $1b undrawn revolving facility, along with a higher dividend for 2025. Together, these points indicate financial resilience that can help cushion operational challenges and support earnings stability.
• Management refers to growing momentum in nuclear markets tied to energy security, decarbonization and demand from AI and data centers, and describes Cameco as well placed across the fuel cycle. Combined with long term contracting in uranium and fuel services, this could provide a supportive backdrop for average realized prices, revenue and segment earnings.

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Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Cameco is CA$149.06, which represents up to two standard deviations below the consensus price target of CA$178.73. This valuation is based on what can be assumed as the expectations of Cameco's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$195.0, and the most bearish reporting a price target of just CA$135.0.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be CA$4.0 billion, earnings will come to CA$1.2 billion, and it would be trading on a PE ratio of 67.4x, assuming you use a discount rate of 6.4%.
• Given the current share price of CA$141.19, the analyst price target of CA$149.06 is 5.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.