On today’s Breakouts report, there are 41 stocks on the positive breakouts list (stocks with positive price momentum), and 16 securities are on the negative breakouts list (stocks with negative price momentum). Discussed today is a stock that is on the positive breakouts list – enCore Energy Corp. (EU-X).
Year-to-date, the share price has rallied 62 per cent, and the stock has a couple of near-term catalysts that may lift it even higher. The company is expected to begin production at one of its plants this month and production at a second plant is slated to start in the first quarter of 2024. Stocks often experience re-ratings and multiple expansion as they transition to a producer from a developer.
Over the past four trading sessions, the share price has rallied 22 per cent. Given this sharp move higher, the stock is now in overbought territory with a relative strength index (RSI) reading of 71. Generally, an RSI reading at or above 70 reflects an overbought condition. As a result, the positive price momentum may pause in the near-term in order for the stock to digest these gains.
A brief outline on enCore is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
EnCore is an emerging uranium producer with operations in the United States. In terms of its production pipeline, management is currently focused on its three licensed In-Situ Recovery uranium processing plants located in Texas (Rosita, Alta Mesa and Kingsville Dome) with production set to begin at one plant this month and another plant in the first quarter of 2024. In addition, the company has pipeline projects located in South Dakota (Dewey-Burdock project) and Wyoming (Gas Hills project) as well as longer-term production planned from resources located in New Mexico (Crownpoint and Hosta Butte project).
The stock has a market capitalization of approximately $834-million and is dual-listed, trading on the TSX Venture Exchange and the NYSE American under the ticker EU.
Investment thesis
- Focus on climate change with rising demand for carbon-free nuclear energy.
- Strong industry fundamentals: supply deficit (nuclear reactor requirements exceed global uranium production).
- Rising demand for uranium products from utility companies.
- Emerging U.S. uranium producer. Rosita plant beginning production by the end of this month and the Alta Mesa plant starting production in the first quarter of 2024.
- Total measured and indicated resources estimated at over 74 million pounds and total inferred mineral resources are estimated at over 26 million pounds.
- Management targets annual uranium production of 3 million pounds by 2026 and 5 million pounds by 2028.
- Seasoned management team. Chief executive officer Paul Goranson is the former chief operating officer of Energy Fuels Inc. (EFR-T) and former president of Cameco Resources. Chairman Bill Sheriff co-founded Energy Metals Corp., which was acquired in 2008.
- Year-to-date, the spot uranium price is up over 50 per cent, trading around a 15-year high.
- Potential near-term key risks to consider: 1) production delays/challenges and 2) volatility in the uranium price.
Dividend policy
As an emerging producer, the company currently does not generate any earnings. Consequently, it does not pay its shareholders a dividend.
Analysts’ recommendations
According to Bloomberg, the company has two “buy” recommendations and two “speculative buy”recommendations (from Canaccord’s Katie Lachapelle and Cantor Fitzgerald’s Mike Kozak).
The firms providing research coverage on the company are: Canaccord Genuity, Cantor Fitzgerald, Haywood Securities, and PI Financial.
Financial forecasts
According to Refinitiv, the consensus revenue estimates are US$49-million in 2024, US$176-million in 2025 (based on one estimate from Canaccord Genuity) and US$240-million in 2026 (based on one estimate from Canaccord Genuity).
Valuation
The stock is commonly valued by analysts on a price-to-net asset value basis.
According to Bloomberg, the average 12-month target price is $6.34, suggesting the stock has 22 per cent upside potential over the next year. Individual target prices are: $5 (from PI Financial’s Chris Thompson), $6, US$5 and $7.50 (from Cantor Fitzgerald’s Mike Kozak).
Three of the target prices are quite recent, calculated over recent days and weeks, however, the low on the Street from PI Financial was set back in August.
Insider transaction activity
Quarter-to-date, there has been trading activity in the public markets reported by two insiders, albeit relatively small transactions.
On Oct. 12, director Susan Hoxie-Key bought 1,000 shares at a price per share of US$3.0494, increasing this particular account’s position to 2,000 shares.
On Oct 11, chief operating officer Peter Luthiger invested over US$62,000 in shares of enCore. He purchased a total of 20,655 shares for two accounts that he has control or direction over at an average cost per share of approximately US$3.04.
Chart watch
Year-to-date, the share price is up 62 per cent. Its industry peers, Cameco Corp. (CCO-T) and Energy Fuels Inc. (EFR-T) are up 97 per cent and 35 per cent, respectively.
Over the past four trading sessions, the share price has rallied 22 per cent. Given this sharp move higher, the stock is now in overbought territory with a relative strength index (RSI) reading of 71. Generally, an RSI reading at or above 70 reflects an overbought condition. As a result, the share price may pause in the near-term in order to digest these gains.
In September, the stock broke out of a downtrend that has been in place over the past year. The stock faces major resistance between $5.50 and $6. Looking at the downside, there is strong technical support around $4, near its 50-day moving average (at $4.26).
ESG Risk Rating
Looking at three risk providers Sustainalytics, MSCI and Bloomberg, the company currently does not have an environmental, social and corporate governance (ESG) risk rating.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
This report should not be considered an investment recommendation.
Jennifer Dowty