Constellation Energy's Stock Soars on Three Mile Island Restart and Microsoft Deal

Analysts revamp stock price targets for Microsoft's AI-power supplier

AI needs more than just graphics-processing units: It needs power. A ChatGPT query can consume nearly 10 times more electricity than a Google search. While U.S. power demand has remained relatively flat over the past decade, that trend is about to shift. According to a Goldman Sachs report in May, overall power demand in data centers is projected to surge by 160% by 2030. Microsoft needs that massive amount of energy, fed not just by wind, solar and fossil fuels. It has agreed to purchase nuclear power from Constellation Energy (CEG) for 20 years, the first time Microsoft has secured a dedicated, 100% nuclear facility for its operations. The deal was Constellation's biggest ever. Constellation is now reopening its Unit 1 reactor at Three Mile Island, which closed due to a lack of economic competitiveness in 2019. It's expected to go back into service in 2028, according to a statement on Sept. 20. Nuclear power is considered clean because it generates electricity without producing carbon emissions, unlike fossil fuels like coal, oil and natural gas. Microsoft's shift indicates a growing interest in nuclear energy as a carbon-free option to support AI infrastructure. "Policymakers and the market have received a huge wakeup call," Constellation Chief Executive Joe Dominguez said in a Bloomberg interview. "There's no version of the future of this country that doesn't rely on these nuclear assets." Related: Nvidia CEO Jensen Huang just told investors what's next for the AI chipmaker Robert Coward, a former president of the American Nuclear Society, said he "would expect additional similar agreements in the coming months and years," according to The Washington Post. Constellation stock surged more than 22% following the announcement on Sept. 20. How big is Constellation's potential? Constellation Energy is a major U.S. energy company that supplies electricity, natural gas, and renewable energy. It operates nuclear-, wind- and solar-power plants. The company's latest financial report, in August, showed earnings per share of $1.68 for the quarter ended June 30, missing the consensus estimate of $1.72. Revenue of $5.48 billion fell short of analysts' consensus forecast of $5.55 billion. Constellation raised its adjusted-EPS outlook for fiscal 2024 to between $7.60 and $8.40 a share, up from its previous guidance of $7.23 to $8.03. The consensus estimate stands at $7.81. Related: Analyst reviews BlackRock rating after AI partnership with Microsoft Barclays in August initiated coverage of Constellation after the earnings report with an overweight rating and a $211 price target. It cited upside to consensus earnings estimates with a "bullish catalyst path ahead," thefly.com reported. The restart plan, which would cost about $1.6 billion, faces strict regulatory challenges, including safety inspections from the Nuclear Regulatory Commission, which has never reopened a plant, The Washington Post reported. But should it proceed successfully, the Three Mile Island site would supply Microsoft with enough energy to power 800,000 homes. "This plant never should have been allowed to shut down. ... It will produce as much clean energy as all of the renewables [wind and solar] built in Pennsylvania over the last 30 years," Dominguez said. Microsoft's capital expenditures are now dominated by investments in cloud infrastructure and AI. In the company's July earnings call, it announced plans to further ramp up AI spending to meet surging demand. Analyst lifts Constellation stock price target At least five analysts upgraded their price targets on Constellation stock following the deal with Microsoft. Wells Fargo raised Constellation Energy's price target to $300 from $250 and affirmed an overweight rating. The firm notes that the power purchase agreement with Microsoft indicates strong interest from tech giants to secure clean power. Wells Fargo sees it as a value-additive transaction but not without risk, according to thefly.com. Morgan Stanley raised its CEG price target to $313 from $233 with an overweight rating. The analyst said Microsoft paid "a premium price" in the deal, which shows the value of nuclear power for cloud service providers and suggests that future deals might come at higher prices. Morgan Stanley is also offering positive outlooks for Vistra (VST) and PSE&G (PEG) , raising the stock price targets to $132 from $110 and to $95 from $83, respectively, both with overweight ratings. Jefferies raised Constellation Energy's price target to $256 from $183 and maintained a hold rating. More AI Stocks: The power purchase agreement has "very positive sector ramifications," supporting the data center thesis and expanding opportunities for nuclear energy, according to the analyst. Jefferies also advises investors to "keep in mind specific attributes that make the deal uniquely attractive." Constellation Energy traded at $253.49 on Sept. 24. Related: Veteran fund manager sees world of pain coming for stocks

Constellation Energy's Microsoft Deal Sparks Long-Term Growth: Analysts Raise Price Forecasts Amid Nuclear Revival - Constellation Energy (NASDAQ:CEG)

Wells Fargo raised price target to $300, and Morgan Stanley to $313, reflecting optimism in nuclear energy's value. Constellation Energy Corporation CEG shares are trading relatively flat today after jumping more than 22% after the company signed a 20-year power purchase agreement with Microsoft on Friday. The deal entails the launch of the Crane Clean Energy Center (CCEC) and the restart of Three Mile Island Unit 1, which was closed five years ago. Following the announcement, several analysts raised the price target on the stock. KeyBanc analyst Sophie Karp maintained an Overweight rating and raised the price target from $230 to $265. The analyst writes that the deal allows for reevaluating other parts of CEG's portfolio, and they expect continued positive momentum for the shares. Nuclear generation has unique scarcity characteristics that are difficult to replicate at scale, positioning CEG to leverage its asset base and expertise as the country's largest nuclear operator, says the analyst. Although the company did not disclose the offtake price, Karp estimates that it needs to be around $120/MWh to achieve a projected increase in "base" EPS CAGR from 10% to 13% between 2024 and 2030. The analyst writes that the price is a significant premium over current PJM power curves and exceeds the estimated ~$60/MWh gross receipts from CEG's PJM fleet based on recent capacity pricing. The analyst updated the estimates based on the second-quarter results, revised power and capacity prices, and operating assumptions. The impacts of the MSFT deal will be outside the forecast horizon, as the plant is expected to restart in 2028, adds the analyst. Apart from this, Evercore ISI maintained an Outperform rating, with an increased price target to $254 from $212. Maintaining an Overweight rating, Wells Fargo increased the price target to $300 from $250 and Morgan Stanley to $313 from $233. Investors can gain exposure to the stock via Strive Natural Resources and Security ETF FTWO and Virtus Reaves Utilities ETF UTES. Price Action: CEG shares are down 0.12% at $254.69 at the last check Monday. Photo by metamorworks via Shutterstock Read Next: GE Aerospace Takes Flight With AI Wingmate: Boosts Innovation, Employee Productivity With Microsoft's Azure AI Market News and Data brought to you by Benzinga APIs

Constellation Energy Gets Positive Comments on Three Mile Island Microsoft Deal

KeyBanc raised its price target on the stock and said the deal with Microsoft "suggests attractive economics." Constellation Energy (CEG) has received positive analysts' reports after the power utility's announcement last Friday it would be restarting Pennsylvania's Three Mile Island Unit 1 nuclear plant to provide electricity for Microsoft's (MSFT) data centers. Barclays analyst Nicholas Campanella wrote in a note to clients that the move was "somewhat unexpected by the market," and that Barclays sees it "as positive" for the company, as well as for Talen Energy Group (TLN) and Public Service Enterprise Group (PEG). Campanella has an "overweight" rating on Constellation, with a price target of $211. KeyBanc analysts said Constellation's deal with Microsoft "suggests attractive economics" and they expect "positive momentum to continue." The called it "an important catalyst in demonstrating the value of nuclear generation" in the age of artificial intelligence (AI). KeyBanc has an "overweight" rating on the stock as well, and it also raised the price target to $265 from $230. The news on Friday sent Constellation Energy shares skyrocketing 22% to an all-time high. Although they are little changed in early afternoon trading Monday, they have gained about 120% year-to-date.

Constellation Energy stock sees increased market cap after TMI restart and new PPA By Investing.com

On Monday, Barclays (LON:BARC) updated its outlook on Constellation Energy Corporation (NASDAQ:CEG), increasing the stock's price target to $280 from $211 while maintaining an Overweight rating. The adjustment follows Constellation Energy's recent announcement regarding the restart of Three Mile Island Unit 1 and a new power purchase agreement. The company, on Friday, disclosed a 20-year power purchase agreement (PPA) with Microsoft (NASDAQ:MSFT) and the rebranding of Three Mile Island Unit 1 as the Crane (NYSE:CR) Clean Energy Center (CCEC), boasting an 835MW capacity. Alongside these developments, Constellation Energy also elevated its base earnings per share (EPS) growth rate projection to 13% up from 10%, extending through 2030. The news of these strategic moves has positively impacted Constellation Energy's market valuation, adding approximately $14 billion to its market capitalization. Analysts have observed that the market is currently pricing the Microsoft deal at around 29.0 times price-to-earnings (P/E) and Constellation Energy's stock is trading at 26.3 times on projected 2026 EPS. The deal with Microsoft is characterized as a front of meter (FTM) transaction, reinforcing the company's position as the leading owner of unregulated nuclear generation in the United States. The expectation is that Constellation Energy's management will be able to secure similar contracts, whether behind or in front of the meter, utilizing its approximately 22GW nuclear fleet. Despite the rising valuation and the increased cost of the Share Repurchase Plan (SRP) at current trading levels, the analyst believes that the recent FTM transaction, with a rate of $104/MWh, is a significant catalyst. It supports the theme of nuclear contracting for artificial intelligence (AI), an area where Constellation Energy has considerable exposure within the coverage universe of the analyst's firm. The firm's stance remains Overweight on the stock. In other recent news, Constellation Energy has seen its stock target raised by multiple firms following several key developments. KeyBanc Capital Markets, Mizuho, and Wells Fargo (NYSE:WFC) have all adjusted their outlooks, raising their price targets for the energy company. This comes after Constellation Energy reported strong second-quarter financial results, including GAAP earnings of $2.58 per share and adjusted operating earnings of $1.68 per share. The company also increased its full-year adjusted operating earnings guidance to a range of $7.60 to $8.40 per share. A significant development is the restart of the Three Mile Island nuclear reactor, which is set to supply power to a Microsoft data center. This move has led to a 20-year power purchase agreement with Microsoft, marking Constellation Energy's largest deal of this kind. The deal is expected to contribute significantly to the company's growth prospects and showcases the growing importance of nuclear power in supporting advanced technology sectors. Other analyst firms, including Jefferies and Barclays, have also updated their stances on Constellation Energy, each highlighting the company's unique market position and potential for future growth. Furthermore, Constellation Energy's capacity auction results exceeded expectations, leading to increased earnings projections for 2025 and 2026. The company has also allocated over $2.3 billion of capital for 2024 and 2025, indicating a strong financial footing for the upcoming years. These are just some of the recent developments for Constellation Energy. Constellation Energy Corporation's (NASDAQ:CEG) latest strategic initiatives and the resulting optimistic outlook from Barclays have contributed to a notable surge in the company's market valuation. Reflecting on the real-time data from InvestingPro, CEG's market capitalization stands at a robust $79.73 billion. The company's P/E ratio, currently at 23.7, is projected to adjust to 30.78 in the last twelve months as of Q2 2024, indicating a market expectation of continued earnings growth. Investors may also find the PEG ratio of 0.15 for the same period particularly compelling, suggesting that the stock could be undervalued relative to its earnings growth. Additionally, the dividend growth of 25.0% in the last twelve months as of Q2 2024, coupled with a recent strong price performance -- with a year-to-date total return of 119.31% -- highlights the company's potential for both income and capital appreciation. With these metrics in mind, one of the InvestingPro Tips recommends closely monitoring the company's upcoming earnings report on November 5, 2024, to gauge the sustainability of its financial performance and growth trajectory. Another tip highlights the importance of comparing the fair value estimates -- InvestingPro's fair value is currently at $185.95, while analyst targets suggest a fair value of $250 -- to assess the stock's potential upside or downside. For more detailed analysis, InvestingPro offers additional tips that can provide investors with deeper insights into Constellation Energy's financial health and future prospects.