RBC Capital Markets analyst H. Fraser Phillips upgraded Cameco to outperform from sector perform due to the recent correction in its share price and the stabilization of spot uranium prices.
He also pointed to the expressions from the companys management during their year-end conference call that lower uranium equity valuations were approaching good value.
Diversification of production sources through an acquisition would be a positive, though shareholder dilution is a risk, Mr. Phillips told clients in a note.
As for prices, his analysis shows that the uranium market remains very tight. RBC expects prices will rebound in 2008.
Meanwhile, Cameco appears to be recovering from the contaminated soil-related shutdown of its Port Hope uranium conversion plant, flooding at the giant Cigar Lake deposit, and dealings with the Canadian Nuclear Safety Commission, Mr. Phillips said.
But uncertainty remains, particularly with the expected production date of 2011 at Cigar Lake and negotiations with Russia regarding highly enriched uranium, he added.
While the analyst believes both could lead to volatility, he thinks the downside risk is already reflected in Camecos share price. He has a $48 price target on the stock, which represents upside of 36%.