S&P 500 component Constellation Energy earned several price-target increases Monday following last week's announcement of a two-decade long contract with Microsoft to provide nuclear power for the tech giant's data centers.
Fellow S&P 500 nuclear power utilities play Vistra also received a price-target hike. Meanwhile, Oklo, the nuclear power startup backed by OpenAI head Sam Altman, also surged in early trade.
Morgan Stanley analyst David Arcaro on Monday raised the firm's target price on CEG to 313, up from 233. The analyst also hiked the target price on Vistra stock to 132, up $22 from its previous 110 target.
KeyBanc also raised its Constellation Energy target price by $35 Monday to 265. Wells Fargo joined the trend, increasing its CEG target to 300, up $50 from its previous view.
Arcaro wrote Monday that the Constellation-Microsoft deal "proves out the value of nuclear power for hyperscalers, with higher prices for future deals." Morgan Stanley estimates Microsoft is paying around $100 per megawatt hour in the deal, representing a $50 per megawatt hour premium compared to the broader market. Arcaro believes Microsoft was willing to pay as much as much as $130 per megawatt hour and Morgan Stanley is now expecting higher prices.
"We're incorporating $120/MWh total price for future potential nuclear deals, up from our prior $80/MWh assumption," Arcaro wrote.
The analyst estimates around $1.70 "in incremental annual" EPS from the deal with about $50 million in free cash flow at a capital cost of roughly $1 billion-$1.3 billion for Constellation. Morgan Stanley values the deal at $19 per CEG share.
S&P 500 Goes Nuclear
Constellation Energy, an S&P 500 stock, gained 0.8% to 257.12 during market trade on Monday, after surging 22.3% on Friday.
Vistra advanced 3.5% to 111.63 Monday. On Friday, the S&P 500 stock gained 16.6% to 107.88. Vistra has also been in reported discussions for power deals at both its nuclear and natural gas-power plants. The stock has skyrocketed 180% in 2024.
Vistra has mounted a 10-day rally, snapping a downtrend and offering an early entry to aggressive investors. The stock was in a buy range, narrowly above a 107.24 cup-base entry, at Friday's close.
Oklo advanced early before declining 1.2% Monday. On Friday, the stock rallied more than 27% to 8.41 after B. Riley Financial initiated coverage on the nuclear reactor company with a buy rating and a 10 price target, citing its owner-operator model as a unique advantage. Cathie Wood has been building a position in Oklo worth more than $2 million since mid-July.
Constellation Energy Stock Performance
Constellation Energy stock is up 118% year to date through Friday's close. Shares rebounded above support and broke a down-sloping trendline last week.
The S&P 500 component hit a new all-time high of 255.24 on Friday, surging past its previous record high of 236.30, which it hit on May 24.
In early August, Constellation Energy increased its full-year profit guidance even as second-quarter earnings and revenue came in slightly under analyst expectations. The company expects 2024 EPS between $7.60-$8.40 per share for 2024. Constellation Energy's previous view was $7.23-$8.03 per share.
Constellation management said in May it will grow base earnings by at least 10% through the end of the decade.
Founded in 1999, Constellation Energy has gone through several phases. After an earlier stint as a public company, it merged with Exelon in 2012 as part of a deal worth roughly $8 billion. While with Exelon, the company's moniker became Constellation Energy Generation. It then split from the utility giant in early 2022.
Constellation Energy owns 25% of U.S. nuclear power reactors. Further, it provides energy to more than 20% of the major commercial and industrial customers in the country.
Constellation Energy stock has an 86 Composite Rating out of a best-possible 99. The S&P 500 stock also has a 97 Relative Strength Rating and a 54 EPS Rating.
Please follow Kit Norton on X @KitNorton for more coverage.
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