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A scoop loader at the Cameco McArthur River uranium mine site in northern Saskatchewan. (STRINGER/CANADA)
A scoop loader at the Cameco McArthur River uranium mine site in northern Saskatchewan. (STRINGER/CANADA)

Eye on Equities

Analysts hike Cameco price targets on uranium spike Add to ...

Uranium isn't the headline-grabbing commodity that gold or oil are, but it's been a rising star as of late thanks to tightening supplies and a buoyant demand outlook.

Over the last few months, the price of uranium has risen significantly, partly in response to a number of supply-related issues, including production difficulties at Energy Resources of Australia Ltd. and French conglomerate Areva. In the meantime, increased demand from Asian utilities promises to send demand for the nuclear fuel rising further.

Today, TD Newcrest analyst Creg Barnes raised his uranium price forecasts for 2011 through 2014, as well as in the longer term. He now expects the spot uranium price to average $75 (U.S.) a pound in 2011, up 20 per cent from his earlier forecast. His long-term price, which starts in 2016, was raised to $70 a pound.

This should be welcome news for shareholders of Cameco Corp. , which on Friday reported adjusted earnings per share in the fourth quarter of 48 cents (Canadian), blowing past the consensus view of 27 cents. The reason was primarily a higher realized uranium price of $48.50 (U.S.) a pound and lower operating costs than expected.

Upside: Mr. Barnes raised his price target by $6 (Canadian) to $51 a share and maintained a "buy" recommendation, reflecting his more bullish view on the uranium market. UBS analyst Brian MacArthur also hiked his price target but was a little more cautious; his 12-month target was jacked up to $47 from $44.

IGM Financial Inc.'s share price has underperformed its peers since June of last year and is trading at an attractive valuation at 13.6 times 2011 estimated earnings per share, well below the U.S. peer average of 16.8 times, said TD Newcrest analyst Doug Young. With the potential for industry flows to shift back into equity funds, market sentiment and margins for the company could be on the upswing, he said.

Upside: Mr. Young upgraded IGM to a "buy" from a "hold" and raised his price target by $4 to $50.

Related: IGM profit rises 76 per cent

Abitibibowater Inc. is selling its 75 per cent equity stake in a collection of Ontario hydroelectric assets in a deal that will reduce the company's debt by $550-million, noted TD Newcrest analyst Sean Steuart. "We expect that this will be a value accretive exercise for the company: selling non-core assets at a premium multiple to strategic buyers," commented Mr. Steuart.

Upside: Mr. Steuart hiked his price target by $6 to $36.

Related: AbitibiBowater to sell stake in its Ontario hydro assets

Canaccord Genuity analyst Phil Skolnick sees more risks ahead for Nexen Inc.'s troubled Long Lake oil sands project and urges investors not to view the stock's recent selloff as a buying opportunity. He believes the company's list of remedies, which includes increasing water disposal ability and increasing steam capacity, "is just the beginning of what needs to be done."

Downside: Mr. Skolnick maintained a "hold" rating while cutting his price target by 7 per cent to $25.

SNC-Lavalin Group Inc. has bought the remaining 23 per cent stake in Alberta electrical transmission company AltaLink Management Ltd. for $213-million, an asset that has growth potential, given the relative valuation multiples of its public utility peers and a promising outlook for transmission infrastructure, said Desjardins Securities Inc. analyst Pierre Lacroix.

Upside: Mr. Lacroix raised his price target by $3.50 to $65 and maintained his "buy-average risk" rating.

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