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In the past year, the commitment to nuclear energy has intensified globally, with over 20 countries at COP28 pledging to triple nuclear capacity by 2050 to slash carbon emissions and enhance energy security. This is in response to an expected annual rise in global electricity demand of 3.4% until 2026. The International Energy Agency (IEA) even predicts that nuclear power generation will reach record highs by 2025, thanks to new reactors in China and India and restarts in Japan and Europe.
Amid this nuclear renaissance, Constellation Energy Group (CEG) is making significant waves. As the largest producer of carbon-free energy in the U.S., CEG boasts an impressive portfolio that includes nuclear plants and renewable energy sources like hydro, wind, and solar. The company's stock has soared to new highs in 2024, driven by robust earnings and growing investor interest in nuclear as a dependable and clean energy source.
But with CEG having surpassed even the most bullish analyst price targets, investors might be curious whether there's still a chance to get on board, or if they've missed the train. Let’s delve deeper into CEG to determine if the company's stock still has room for further upside, or if the rally has run its course.
Constellation Energy Stock's Stellar Performance
Constellation Energy Corp (CEG) has been crushing it over the past year, with the shares up more than 173% over the past 52 weeks. The stock's performance this year alone has been nothing short of spectacular, with CEG's YTD gain of 85% standing out among the best in the S&P 500 Index ($SPX). This impressive surge has bumped CEG's market cap up to a hefty $70.39 billion.
There are still signs the stock is reasonably valued after its breakout performance, though. The company's enterprise value to sales (EV/sales) ratio is 3.33, a solid discount to the utilities sector median. Likewise, the price/earnings-to-growth (PEG) ratio of 1.64 looks like a bargain compared to the utilities sector median of 2.64.
On the dividends front, Constellation paid out its latest dividend of $0.353 per share on March 19. The annualized payout of $1.41 per share results in a forward yield of 0.63% at CEG's current levels. With a payout ratio of roughly 18%, Constellation's dividend is well-covered by earnings, with room for continued growth.
Constellation Rallies on Q1 Report
In its May 9 Q1 earnings report, Constellation reported that net income ballooned to $883 million, or $2.78 per share, from its year-ago profit of $96 million, or $0.29 per share - even as operating revenues for the period dropped to $6.16 billion from $7.57 billion a year ago. Adjusted earnings checked in at $1.82 per share, which comfortably topped the consensus estimate.
Operating expenses during the quarter plummeted 29% year-over-year to $5.3 billion, driven by a 40% slide in fuel costs. Production from Constellation's nuclear fleet ticked up to 45,391 GWh in Q1, while capacity improved to 93.3%.
Looking ahead, CEG backed its guidance for full-year earnings of $7.23 to $8.03 per share, on an adjusted basis. The board also authorized a $1 billion expansion to its share buyback program.
Constellation's Strategic Moves for a Greener Future
Constellation Energy is making big moves by applying to renew licenses for two of its key players in Illinois: the Dresden and Clinton Clean Energy Centers. This isn't just about keeping the lights on; it's a big nod to Constellation's dedication to pumping clean, reliable energy into the grid, tackling the climate crisis, and boosting the local economy with green energy solutions.
The Dresden Clean Energy Center, which got its first license renewal from the Nuclear Regulatory Commission (NRC) back in 2004, is now looking to extend its operation for another 20 years. This would let Dresden, which powers the equivalent of nearly 1.4 million homes, keep doing its thing until 2051. Keeping nuclear plants like Dresden running could add more clean energy to the grid than all of the renewable projects built so far, according to Constellation, and these nuclear installations are also likely to outlive the wind and solar projects popping up today.
Then there's the Clinton Clean Energy Center, also aiming for a 20-year license renewal. With its current license expiring in April 2027, this renewal would let Clinton keep churning out enough carbon-free electricity for around 800,000 homes. To match what Clinton can produce with an extended license, Illinois would have to set up over 1,000 new wind turbines. This really puts into perspective how crucial and efficient nuclear energy is in our quest for clean, dependable power sources, especially now when the demand for energy is sky-high.
How High Can CEG Stock Rise?
On the analyst front, the sentiment toward Constellation Energy is mostly positive, with a consensus rating of "Moderate Buy." The stock is followed by 11 analysts, with 7 advocating a “strong buy” and 4 suggesting a “hold.”
However, the stock's breakout price action seems to have caught even the bulls by surprise. CEG is trading well above its mean price target of $178, and closed Thursday's session just pennies below its Street-high target of $217.
For those wondering if it's too late to get on board, it's worth pointing out that the stock ended 3% lower today after its latest new high, which coincided with a surge into technically overbought territory, based on its 14-day Relative Strength Index (RSI). However, previous such dips in the stock have proven to be excellent buying opportunities in Constellation Energy - suggesting any near-term pullbacks might be an opportune time to start building a stake in this dividend-paying alternative energy standout.
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.
