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Message: NO big gains for uranium until 2010

NO big gains for uranium until 2010

posted on Feb 07, 2008 07:25AM

Uranium prices will improve over the near term, according to UBS analyst Brian Mac-Arthur, but maybe not soon enough for the likes of Cameco Corp. (CCO/TSX) and Uranium OneInc. (UUU/TSX) investors.

"Global power markets remain highly unstable in our view, with future supply of thermal coal and LNG uncertain," Mr. MacArthur said in a note to clients. "Given this and the growing pressure on carbon emissions and the potential for its increased regulation, we believe the relative attractiveness of uranium as a fuel source will continue to build over time."

However, with uranium prices tracking back to US$75 per pound, UBS cut its uranium price forecasts for 2008 to US$88 from US$95, and for 2009 to US$100 from US$150. It's not until 2010 that UBS predicts investors will begin realizing the benefits of uranium's strong long-term fundamentals, as prices hit US$110, up from its previous estimate of US$50 for that year.

Based on these new uranium price forecasts, Mr. Mac-Arthur decreased his 2008 per-share earnings estimate for Cameco to $2.35 from $2.48, and to $2.47 from $2.92 for 2009. His price target on the stock falls to $49 from $53, though his "buy" rating remains unchanged.

Mr. MacArthur also lowered his earnings estimates and price target on Uranium One while maintaining his "buy" rating. His 2008 EPS forecast goes to 18¢ from 22¢, while his 2009 forecast moves down to 74¢ from $1.26. His Uranium One price target is $10.50, down from $12.50 previously.

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