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Why It's Time to Buy This Uranium Miner's StockWhy It's Time to Buy This Uranium Miner's StockBarron's (Online); New York Heading into this past week, uranium miner Cameco was that rare stock in the market: It had posted a double-digit gain in 2022. One deal made those gains disappear—and created a buying opportunity. At first glance, there didn't seem to be all that much that was controversial about the joint venture Cameco (ticker: CCJ) announced this past Tuesday . Along with Brookfield Renewable Partners (BEP), Cameco agreed to buy Westinghouse Electric, a servicer to nuclear power plants, for $7.88 billion, including debt. Cameco will own 49% of the joint venture once the deal is completed. Related Market Data Commodities & Futures Its stock dropped 20% this past week, after Cameco said it would issue $650 million in new shares at $21.95 apiece, a discount of 15% to where they had been trading. It was a steep price to pay to raise money for the deal, especially when the amount Cameco and Brookfield are paying is "skewing towards fully valued," according to Cantor Fitzgerald analyst Mike Kozak. But that was only part of the problem. Before the deal, Cameco had the benefit of being seen as an easy way to bet on rising uranium prices amid renewed interest in nuclear reactors. Investors who want pure uranium exposure might not stick around for what comes next. They might want to. Westinghouse Electric services about half of the world's nuclear reactors, according to Kozak, providing fuel design and fabrication, plant operation and maintenance, and refueling, while about 85% of its $3.3 billion in revenue comes from long-term contracts. "Cameco will undoubtedly be able to leverage Westinghouse's downstream expertise with its dominance at the front end of the nuclear fuel cycle...in servicing existing customers and targeting new ones," he writes. The timing of the deal probably isn't a coincidence. Countries in Eastern Europe have had their reactors serviced by Russia's Rosatom, but with the war in Ukraine, there's a good chance they will be looking for a new company to handle those duties. "They are aiming to fill a huge hole left by Rosatom and we like their chances," writes the Bear Traps Report's Larry McDonald. The acquisition isn't set to close until the second half of 2023, but there's a lot to like about Cameco until then. Paradigm Capital's Gordon Lawson notes that the company's newest mine is almost at full production, and it has been approved to increase production at another mine. In addition, it has contracts in place that should help protect it from volatility in the price of uranium. He has a $48 price target on Cameco stock, more than double Friday's close of $21.29. Sometimes, a big drop is just a second chance to pick a winner. |
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