Vertically Integrated Uranium Supply And Tight Markets Will Drive Strong Future Earnings

Catalysts

About Uranium Energy

Uranium Energy Corp is building a vertically integrated platform to supply low cost, U.S. origin uranium and nuclear fuel products to utilities and government customers.

What are the underlying business or industry changes driving this perspective?

• Ramp up of multiple ISR hubs at Christensen Ranch, Burke Hollow and Ludeman alongside the Irigaray and Hobson plants should lift production volumes as new header houses and wellfields come online, supporting stronger revenue growth and better absorption of fixed costs, which can expand operating margins.
• Launch of United States Uranium Refining and Conversion Corp positions UEC as the only American producer with both uranium and UF6 capabilities, allowing it to capture more of the nuclear fuel value chain over time, which can structurally increase earnings power and improve net margins.
• Tight global uranium supply combined with rising nuclear power demand and supportive U.S. policy, including potential expansion of the strategic uranium reserve and Section 232 outcomes, should support higher pricing for unhedged production, which directly benefits revenue and cash flow per pound sold.
• Advancement of large scale development assets such as Sweetwater and Roughrider, including permitting under FAST 41 and resource conversion drilling, creates a pipeline of higher grade and higher capacity projects that can extend production visibility and enhance long term earnings growth.
• Debt free balance sheet with approximately $698 million in cash, inventory and liquid assets and a growing low cost physical uranium inventory purchased below market provides flexibility to time sales into stronger markets, which can improve realized prices, preserve liquidity and support higher future returns on equity.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Uranium Energy's revenue will grow by 92.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -156.5% today to 34.3% in 3 years time.
• Analysts expect earnings to reach $120.8 million (and earnings per share of $0.33) by about December 2028, up from $-77.8 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 99.8x on those 2028 earnings, up from -75.4x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.8x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The new United States Uranium Refining and Conversion Corp business line could face permitting delays, siting challenges or higher than expected construction and operating costs. This could extend the study phase and time to profitability, weigh on future earnings and delay any margin expansion expected from vertical integration.
• UEC remains 100 percent unhedged and heavily exposed to uranium prices. If the current structural deficit eases, Section 232 outcomes disappoint or global nuclear policy support softens, realized prices could fall below expectations, directly reducing revenue and compressing net margins.
• The aggressive ramp up across multiple ISR hubs at Christensen Ranch, Burke Hollow and Ludeman, alongside Sweetwater and Roughrider development, increases execution risk. Wellfields could underperform, grades could disappoint or operating issues could arise, which would limit production growth and keep unit costs and operating margins worse than anticipated.
• The strategy of building a large physical uranium inventory and deferring spot sales to future periods assumes sustained price strength. Any prolonged uranium price stagnation or decline would force inventory write downs or weaker selling prices, reducing cash flow and lowering returns on equity.
• UEC is highly leveraged to U.S. policy and defense demand, including the potential expansion of the strategic uranium reserve and naval propulsion needs. If future administrations reduce nuclear support or procurement budgets, long term contract volumes could fall short of expectations, pressuring revenue visibility and long run earnings growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $16.64 for Uranium Energy based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $19.75, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $352.2 million, earnings will come to $120.8 million, and it would be trading on a PE ratio of 99.8x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $12.14, the analyst price target of $16.64 is 27.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.