2024-05-28 12:31:17 ET
Summary
- Investors overlook Constellation Energy at its current price despite regulatory advantages and unprecedented data center power demand.
- While Constellation Energy's stock price has risen significantly, the potential for accelerated nuclear power generation provides an opportunity for further gains.
- Constellation Energy's ability to provide continuous, carbon-free electricity uniquely positions them within the energy sector.
Investment Thesis
Investors continue valuing Constellation Energy in comparison to other utility companies, with disregard towards regulatory advantages and data center power demand. While price appreciation values the company at 16x EBITDA and 30x earnings, much of its value still remains probabilistic. As seen with the Amazon and Talen deal in March, urgency for data center companies to secure power remains at an all-time high. In Constellation’s Q1 2024 conference call, management noted similar interest from potential customers, most likely on a much larger scale. Moreover, clean energy initiatives provide Constellation with foundational support, especially as the negative perception of nuclear shifts towards the positive. Then, the company's ten-year EPS growth guidance of 10% indicates higher forward power prices. In light of this, I believe Constellation has even more room to run alongside the development of a long-term investment opportunity. My target price for CEG is $265.48 based on 2027 EBITDA of $6,275 million and 15x EBITDA.
Company Profile
Constellation Energy ( CEG ), previously part of Exelon Corporation ( EXC ), was spun off on February 1, 2022 . Presently, CEG is now the largest producer of carbon-free energy in the United States with a diverse portfolio across nuclear, wind, solar, and hydropower generation. Their operations span across the United States, Canada, and the United Kingdom. This consists of approximately 2 million customers, including 1.7 million residential customers, and 75% of the top 100 US companies. Their generation fleet, which is nearly 90% carbon-free, positions them as the leading player in the clean energy transition. CEG aims to bring this number to 95% by 2030 and 100% by 2040. Below you can see the breakdown of generation type, with renewable including wind, hydroelectric, and solar generating assets....
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Constellation Energy: Expensive But Well Positioned Alongside Robust Demand