Bull of the Day: Denison Corp (DNN)
Denison Corp (DNN) is a Zacks Rank #1 (Strong Buy) that operates as a uranium exploration and development company. The company focus is mainly in the Athabasca region of Saskatchewan, but it also holds interests in various uranium project joint ventures in Canada.
Uranium stocks have been hot in 2021, catching some popularity with the meme crowd of Reddit. While there is a fundamental reason for Uranium stocks to go higher, the excitement sent Uranium ETF URA up over 100% on the year.
The ETF is off 20% from recent highs and many uranium plays have pulled back well off their 2021 high marks. Investors should now ask if it’s time to get back into this niche sector.
About the Company
Denison’s Key Assets include the following:
Flagship Wheeler River Project: Wheeler River is the largest undeveloped uranium project in the eastern portion of the Athabasca Basin. With a 95% interest for Denison, the project has two high grade uranium deposits and 109 million pounds of mineral reserves.
McClean Lake Mill: Denison has a 22.5% interest in this high-grade uranium mll. The uranium mill is one of the world’s largest uranium processing facilities and the property site consists a tailings management facility, administration offices and building, camp facilities, back-up power supply, water treatment plants and a host of other minor facilities.
The company also holds interests in other joint ventures in Canada and sees some cash flow from closed mine operations in Elliot Lake.
The company has a market cap of about $1.25 Billion and has Zacks Style Scores of “B” in Momentum, but “F” in Value. The Forward PE of 78 will scare investors off, with uranium prices can consistently stay higher, this will improve.
The company pays a no dividend and has a beta of 2, which is very volatile for a stock under $2.
Q3 Earnings
Denison reported earnings in early November, seeing a 400% EPS beat. The quarter saw their highest revenues and earnings in years, seeing revenues higher by 248% year over year.
Denison Mine Corp Price and EPS Surprise
Denison Mine Corp price-eps-surprise | Denison Mine Corp Quote
Despite the good quarter, investors took profits and the stock pulled back from its recent run. There are valuation questions of course, but also questions as to if the earnings can remain consistent.
Estimates
Looking at the estimates for the current year, investors can start to have confidence that the company will continue to produce. Over the last 30 days, estimates have gone from negative $0.02 to positive $0.02.
Uranium Prices
The reasoning behind the excitement of uranium stocks is the higher price of the commodity itself. The higher prices allow the miners to become more profitable, so naturally, the stocks will move along with that commodity.
Currently for the year, uranium prices are up over 50%. While other energy and metal prices have pulled back on the recent market sell off, uranium is actually flat over the last month. The relative strength is a good sign going forward into 2022.
The Technicals
DNN was a $15 stock in 2008. When the financial crisis hit, the stock fell apart and fell under $1. It never fully recovered and was left for dead until this year. When the stock hit $2 last month, it was a nine year high, showing us investors are coming back into this name.
The recent pullback tested the bulls resolve, but the stock bounced right at the 200-day moving average at $1.31. DNN now trades over $1.50 and bulls can look for some resistance in the $1.70 area.
If the stock can get back over $2, the 161.8% Fibonacci extension is $2.68. This target for the bulls is over 75% from current levels.
Bottom Line
Uranium as an energy alternative is highly regulated and headlines from governments can affect price. There has been a lot of negative opinions about nuclear energy over the years, but that tone has changed as it has proven to be a reliable and safe energy source.
With demand going higher along with price, the miners are an attractive way to get exposure. Denison allows investors a low-price entry point into a company that offers earnings potential if uranium prices continue to radiate higher.
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