CCO:CC - Cameco's strong long-term rationale for Westinghouse outweighed in short term

Cameco ( NYSE: CCJ ) -15.1% in Wednesday's trading after it agreed to buy Westinghouse Electric in a $7.9B deal through a partnership with Brookfield Renewable Partners ( BEP ), perhaps the most significant transaction in the nuclear industry in more than a decade.

To help fund the deal, Cameco ( CCJ ) plans to sell $650M worth of the company's stock , priced at $21.95/share.

"We're witnessing some of the best market fundamentals we've ever seen in the nuclear energy sector," Cameco ( CCJ ) CEO Tim Gitzel said in explaining the motivation for the deal.

"This is our entry into the nuclear power segment, which we believe is a critical technology for global grids to achieve net zero," Brookfield Renewable ( BEP ) CEO Connor Teskey said.

Analysts at Canaccord Genuity believe the deal makes long-term strategic sense for Cameco ( CCJ ), but see investor unease in the short term around dilution and significant capital outlay; to fund its 49% share, Cameco will need to tap into ~C$1.4B cash on hand, debt and equity via the $650M bought deal at a 15% discount to Tuesday's closing share price.

Canaccord also said the deal reduces Cameco's ( CCJ ) pure-play exposure to uranium and spot pricing, which could be viewed as a negative by some investors.

On the positive side, by combining Cameco's ( CCJ ) upstream uranium production with Westinghouse's downstream capabilities, Cameco will effectively become a "one-stop shop" for utilities, which should give the company a competitive advantage in contract negotiations.

Canaccord also noted the acquisition provides a predictable cash flow stream, with ~85% of Westinghouse's revenue coming from long-term contracted or highly recurring customer service provisions.

Cameco ( CCJ ) warrants a Sell rating following the deal, Trapping Value writes in an analysis newly posted on Seeking Alpha .

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