Based in Toronto, Canada, uranium exploration and development company Denison Mines Corp. (DNN) is known primarily for its flagship project, its 95% owned Wheeler River uranium project. The company also acquired a 50% ownership stake in JCU (Canada) Exploration Company on August 3, 2021. For the third quarter, ended September 30, 2021, DNN’s revenue increased 247.8% year-over-year to CAD9.54 million ($7.52 million), while its net income came in at CAD32.87 million ($25.91 million) compared to a CAD5.48 million ($4.32 million) loss in the year-ago period.

Investors’ optimism surrounding soaring uranium prices helped DNN’s shares hit their 52-week high of $2.14 on November 10. However, according to Trading Economics data, uranium futures fell to around $46 per pound, declining from their $48.10 two-week high reached on November 15. The stock has lost 29.7% in price over the past month to close yesterday’s trading session at $1.49. It is currently trading 30.4% below its 52-week high.

DNN’s toll milling operation at McClean Lake was suspended during the second and third quarters of fiscal 2020 and again during the first quarter and the beginning of the second quarter of 2021 due to the suspension of mining at the Cigar Lake mine because of the COVID-19 pandemic. So, amid rising COVID-29 delta variant cases in Canada and omicron variant fears, DNN’s near-term prospects look bleak.

Here are the factors that could influence DNN’s performance in the coming months:

Selling Shares to Fund Growth Activities

DNN announced an At-the-market (ATM) offering program on September 28, 2021, that allows it to sell common shares from time to time for an aggregate offering of up to $50 million. The ATM will likely be effective until October 16, 2023, unless terminated at a prior date. The company is expected to use proceeds from any share issues from the program to fund its mineral property evaluation, project engineering activities, long lead project construction items, and corporate and administrative expenses. However, this move could lead to share dilution.

Unimpressive Guidance for 2021

During the third quarter of 2021, DNN decreased its fiscal 2021 outlook for evaluation expenditure by $1.65 million. The company increased its outlook for exploration expenditure by $590,000 due to increased costs related to exploration programs at its Ford Lake and Wheeler River properties. It also increased its outlook for corporate administration and other expenses by $248,000. Last, it reduced its outlook for UPC by $70,000 to reflect the actual revenues earned under the UPC master service agreement, which was terminated in the third quarter.

Poor Profitability

In terms of trailing-12-month EBIT margin, DNN’s negative 102.59% is lower than the 7.09% industry average. The  stock’s negative trailing-12-month EBITDA margin and levered FCF margin are lower than the 20.97% and 9.89% respective industry averages. In addition, its trailing-12-month ROTC is negative compared to the 3.51% industry average.

POWR Ratings Reflect Bleak Prospects

DNN has an overall D rating, which equates to a Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. DNN has a D grade for Quality, which is in sync with its lower-than-industry profitability ratios.

The stock has an F grade for Stability, consistent with its 1.95 beta.

DNN has an F grade for Value. This is in sync with its 98.75 x forward non-GAAP P/E, which is 732.8% higher than the 11.86x industry average. And its 83.10x and 87.31x respective forward EV/S and P/S are higher than the 2.46x and 1.38x  industry averages.

In addition to the POWR Rating grades I have just highlighted, we have also rated the stock for Growth, Sentiment, and Momentum. Get all the DNN ratings here.

Also, DNN is ranked #34 out of 40 stocks in the Miners – Diversified industry.

Bottom Line

Famous uranium company DNN and Orano Canada Inc. announced the successful completion of a five-year test mining program on November 3, deploying the patented Surface Access Borehole Resource Extraction (SABRE) mining method on the McClean Lake property. However, the stock has declined in price significantly since hitting its 52-week high. Moreover, analysts expect the company’s EPS to remain negative in the current quarter, ending December 31, 2021. So, we think it could be wise to avoid the stock now.

How Does Denison Mines (DNN) Stack Up Against its Peers?

While DNN has an overall POWR Rating of D, one  might want to consider investing in Miners - Diversified stocks having a B (Buy) rating: Fortescue Metals Group Limited (FSUGY), Lundin Mining Corporation (LUNMF), and Champion Iron Limited (CIAFF).

DNN shares rose $0.01 (+0.67%) in premarket trading Friday. Year-to-date, DNN has gained 130.29%, versus a 25.95% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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