On Thursday, RBC Capital Markets updated its outlook on shares of Constellation Energy Corporation (NASDAQ:CEG), increasing the stock's price target to $272 from the previous $214. The firm has maintained a Sector Perform rating on the shares. This revision follows the recent announcement that Constellation Energy will reopen Unit-1 of the Three Mile Island nuclear facility, a move that was largely anticipated due to the financial incentives provided by the Production Tax Credit ( PTC (NASDAQ:PTC)).
The unexpected element of the news was Constellation Energy's agreement with Microsoft (NASDAQ:MSFT), which entails the tech giant purchasing the entire output of the plant to power its data centers. While the financial terms of the deal remain confidential, RBC Capital estimates that the price is approximately $40 per megawatt-hour higher than the current forward market prices. This suggests a robust demand for renewable energy that is available around the clock.
Despite the positive development with Microsoft, RBC Capital expresses caution regarding the potential for similar future agreements. The firm cites the need for further regulatory clarity from the Federal Energy Regulatory Commission (FERC) before it can fully assess the prospects of deals akin to the one with Microsoft.
The upgraded price target to $272 reflects the analyst's recognition of the strong market interest in renewable energy, as evidenced by the agreement with Microsoft. However, the Sector Perform rating indicates that the firm advises investors to expect performance in line with the broader market sector, pending further developments that could impact the company's valuation.
In other recent news, Constellation Energy has been making significant strides with recent developments including a power purchase agreement (PPA) with Microsoft and the restart of the Three Mile Island nuclear facility.
Analysts from BMO Capital, BofA Securities, and Morgan Stanley have favorably viewed these developments, leading to increased price targets for Constellation Energy's shares. The PPA with Microsoft is expected to contribute approximately $1.55 to $1.70 per share to Constellation Energy's earnings per share (EPS) in its first full year of operation.
The restart of the Three Mile Island nuclear facility, rebranded as the Crane Clean Energy Center, is set to supply power to a Microsoft-owned data center. This initiative is projected to boost the company's base earnings growth from the previously expected 10% to 13% over the period from 2024 to 2030.
Further, Constellation Energy recently 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 raised its full-year adjusted operating earnings guidance to a range of $7.60 to $8.40 per share.
These recent developments reinforce Constellation Energy's position as a leading owner of unregulated nuclear generation in the United States. They are expected to contribute substantially to the company's growth prospects, as indicated by analysts from firms including Jefferies and Barclays.
InvestingPro Insights
Constellation Energy Corporation's (NASDAQ:CEG) recent developments align with its strong financial performance, as reflected in InvestingPro data. The company's market capitalization stands at $82.98 billion, underscoring its significant presence in the energy sector. CEG's impressive YTD price total return of 128.25% and 1-year price total return of 154.95% indicate substantial investor confidence, likely bolstered by strategic moves such as the Three Mile Island Unit-1 reopening and the Microsoft deal.
The company's P/E ratio of 23.7 suggests that investors are willing to pay a premium for its earnings, possibly due to its growth potential in the renewable energy space. This is further supported by an InvestingPro Tip noting that Constellation Energy's earnings per share are forecast to grow significantly this year, aligning with the positive outlook reflected in RBC Capital's increased price target.
Another relevant InvestingPro Tip highlights that CEG has raised its dividend for 2 consecutive years, with a current dividend yield of 0.53%. This demonstrates the company's commitment to shareholder returns, which may be attractive to investors seeking both growth and income.
InvestingPro offers additional tips that could provide further insights into Constellation Energy's financial health and market position. Subscribers can access these tips along with more detailed analysis to make informed investment decisions.
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