With the nuclear energy industry representing a controversial sector, investors might initially question the “Strong Buy” consensus view of Denison Mines (NYSE MKT:DNN) stock. However, the uranium exploration, development, and production company has an ace up its sleeve — the burgeoning electric vehicle industry. If EVs truly represent the future of mobility, nuclear power cannot be taken out of the equation. I am bullish on DNN stock.
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On the surface, the burgeoning EV sector seemingly needs no help. Despite their higher average cost relative to their combustion-powered counterparts, EV demand continues to rise. Further, China’s decision to reopen its economy should do wonders for the electric mobility industry. By logical deduction, greater activity means more consumption of critical resources. Therefore, hydrocarbon energy prices will likely skyrocket, incentivizing drivers to make the pivot to electric.
Not only that, government agencies aim to force the transition upon their constituents. Perhaps most notably, California Governor Gavin Newsom announced in September 2020 that the Golden State will phase out gasoline-powered cars. Issuing an executive order, by 2035, all new passenger vehicles must emit zero emissions.
Certainly, not everyone’s happy with the decision. Based on the DNA of the U.S., Americans generally don’t appreciate government authorities telling them what to do. At the same time, California represents a massive automotive market. If it lays down the law, automakers have little choice but to comply.
Assuming this executive order stands, it’s cynically brilliant news for DNN stock. If the EV integration is to be anything more than a pipedream, nuclear power must rise to the forefront.
Adding to the bull case is that, on TipRanks, DNN stock has an 8 out of 10 Smart Score rating. This indicates strong potential for the stock to outperform the broader market.
DNN Stock Plays Into an Inconvenient Truth
While Governor Newsom may have a smug look on his face regarding his climate-friendly position, his executive order ran into an inconvenient truth just two years later. Essentially, the California grid can’t handle air conditioners and other running appliances during heat waves. How, then, is it supposed to handle everyone plugging in their EVs at the same time?
Unfortunately, the grid can’t handle either scenario. According to The New York Times, in September last year, the California Independent System Operator – which manages the state’s grid – asked EV owners to limit when they plugged in to charge.
Let’s be fair – the urgent request was for one week only. However, it still demonstrated the fragility of California’s grid. Keep in mind that around that time, EVs represented 18% of new car sales. When this figure gets closer to 50%, the grid must have undergone extensive improvements. Even then, the increased power demand will keep the lights on for DNN stock.
Fundamentally, EV evangelists must realize two incontrovertible facts. Number one, nuclear energy represents the most reliable form of power by a wide margin. Nuclear power facilities command a capacity factor of 92.5%, easily beating out the second-most reliable energy source — geothermal (74.3%).
Number two, nothing comes close to the energy density of nuclear fuel. According to the Nuclear Energy Institute, one uranium fuel pellet commands as much potential energy as 17,000 cubic feet of natural gas. Therefore, if the electrification of mobility is to have any chance of success, the nuclear energy industry must expand. Ultimately, that’s great news for DNN stock.
A Tough Financial Picture (for Now)
As intriguing as DNN stock is from a narrative perspective, it’s not without faults. Primarily, the financials leave much to be desired.
That’s not to say that Denison represents a purely speculative idea. Most notably, the company enjoys excellent stability in its balance sheet. For instance, its cash-to-debt ratio stands at nearly 110 times, outpacing 74.57% of the competition. Also, its Altman Z-Score (a solvency metric) pings at 6.91, indicating very low bankruptcy risk.
However, Denison struggles with printing consistent profitability. Conspicuously, the mining firm’s retained earnings line item sits at nearly $847 million below breakeven. On the top line, its revenue on a trailing-12-month basis presently pings at nearly 14% below 2021’s total sales result.
Glaringly, DNN trades at an earnings multiple of 135 at writing. This ranks worse than most of its peers. While these stats don’t make for a particularly great investment, do note the relationship to the fundamentals.
As EVs continue to expand, policymakers will encounter a reality check, just like California did. Nuclear energy cannot be ignored, auguring well for DNN stock.
Is DNN Stock a Buy, According to Analysts?
Turning to Wall Street, DNN stock has a Strong Buy consensus rating based on four Buys, zero Holds, and zero Sell ratings. The average DNN stock price target is $2.45, implying 80.15% upside potential.
The Takeaway: DNN Stock Enjoys the Surety of Inevitability
To be 100% clear, it’s not guaranteed that EVs will become the future of transportation. However, many smart individuals (and enterprises) believe it will be. If so, DNN stock represents a no-brainer. Scientifically, it’s practically impossible to integrate EVs without integrating more nuclear power.
