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If you've been following the news, you might have noticed that major tech companies are on a mission to secure nuclear power supplies directly from plants. This push is all about meeting the skyrocketing power demands driven by the explosive growth of artificial intelligence (AI) and the need for massive data centers. At the center of this transformative trend is Constellation Energy (CEG), the largest producer of carbon-free energy in the United States.
As the largest nuclear plant operator in the U.S., its stock price has soared by 129% in the past year, significantly outperforming the broader market. This impressive rally is a testament to the company's strategic positioning and the increasing demand for clean, reliable energy.
Recently, Constellation Energy announced plans to explore the construction of next-generation nuclear plants on its existing sites. This move, revealed in June, aims to cater to the soaring power needs of data centers. CEO Joseph Dominguez highlighted the company's focus on projects of "unprecedented size and scale," signaling CEG's commitment to seizing this emerging market opportunity.
With U.S. power consumption expected to hit the roof in the coming years, CEG's key positioning at the nucleus of nuclear and renewables seems right on the money. Let’s see if CEG is a nuclear energy stock worth buying now.
CEG's Electrifying Performance: A Closer Look at the Numbers
Constellation Energy Group (CEG), valued at $64.9 billion, is a leading nuclear energy company based out of Baltimore. As a major utility player, CEG's business model revolves around generating and distributing clean energy, primarily through its nuclear power plants.
Looking at the company's price action, it's clear that investors have been waking up to the bullish prospects for CEG. Not only has the stock more than doubled in the past 52 weeks; it's up 81% in just the past six months. However, with the shares down about 11% from their recent highs, this correction could be a buying opportunity.
This impressive performance is largely driven by the growing demand for clean energy, particularly in the data center industry.
From a valuation perspective, CEG is priced at 26.8x forward earnings, which is lower than its TTM p/e ratio of 30.4. While the shares trade at a premium relative to other utility stocks, it's fair to say that Wall Street hasn't overinflated its expectations for Constellation's future earnings based on its breakout performance. In fact, based on a discounted cash flow model, the stock actually looks undervalued at current levels.
Constellation pays a quarterly dividend of $0.352 per share, which adds up to an annualized payment of about $1.41. At current levels, the stock yields 0.67%, backed by a conservative payout ratio of around 18%.
Constellation Beats Q1 Earnings Estimates
In its Q1 2024 earnings report, CEG demonstrated strong operational performance across its nuclear fleet and customer-facing businesses.
The company reported earnings of $877 million, or $2.78 per share, even as operating revenues dipped to $6.16 billion year over year. Lower operating expenses helped, as that metric fell 29% to $5.3 billion, primarily on declining fuel costs. Additionally, CEG's nuclear fleet achieved a 95.7% capacity factor in Q1 2024, highlighting the company's efficiency in generating clean energy.
In a statement accompanying the results, CEO Joe Dominguez emphasized the significance of nuclear power in meeting growing demand from the green energy transition, among other sources.
"We had another strong quarter as support grows for nuclear energy as a reliable, clean source to meet growing demand from electric vehicles, heavy industry and emerging technologies, such as AI and related digital infrastructure," Dominguez stated. The company also reaffirmed its full-year 2024 adjusted operating earnings guidance range of $7.23 to $8.03 per share.
Another significant development is CEG's pursuit of license renewals for the Clinton and Dresden clean energy centers in Illinois. If successful, this would provide as much additional carbon-free power as all the renewable energy in America over the past 40 years. This move underscores the company's dedication to increasing its nuclear capacity and reducing carbon emissions.
What Analysts Are Saying About CEG's Future
Analysts are also optimistic about CEG's future performance. Out of 12 analysts offering ratings, 8 have given the stock a "Strong Buy" rating, while 4 have rated it "Hold".
The average price target for CEG is $235.54, indicating a potential upside of 12.1% from Wednesday's close.
Morgan Stanley recently backed its “Buy” rating on CEG, with a price target of $241.00. This indicates a potential upside of 14.7%.
Also, CNBC's Jim Cramer identified Constellation Energy as a top pick for data center services, highlighting its potential in the booming AI-driven market.
Why CEG Is a Top Nuclear Energy Stock to Buy Now
In conclusion, Constellation Energy Group (CEG) is a nuclear energy stock that checks all the right boxes. With its impressive 52-week performance, strong operational execution, and innovative approach to nuclear energy, CEG is priced right for continued growth.
As the demand for clean energy continues to rise, CEG is well-positioned to capitalize on this trend. If you're looking for a top energy stock to add to your portfolio, CEG is definitely worth considering.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
