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Up 43% in 2024, Is This Nuclear Energy Stock Still a Buy?

Barchart - Wed Mar 13, 1:57PM CDT

Amid rising electricity demand in the U.S. and increasing emphasis on clean energy sources, nuclear energy is enjoying a comeback in popularity. Nuclear energy offers carbon-free power generation, and surpasses both solar and wind energy in reliability and cost-efficiency. 

At last year’s COP28 climate summit, 22 nations pledged to triple their nuclear capacity by 2050. Notably, the U.S. leads global nuclear power production, contributing to roughly 30% of the world's nuclear electricity generation.

One stock that’s already reaping the benefits of increased demand for nuclear energy is Constellation Energy Corporation (CEG), up more than 43% year to date after investors cheered the company’s robust forecast for the fiscal year ahead.

But after its big post-earnings rally, is Constellation Energy stock still a good buy now? Let’s find out.

About Constellation Energy Stock

Baltimore-based Constellation Energy Corporation (CEG), which until 2022 operated as the power generation business of Exelon Corp.(EXC),has since successfully positioned itself as the nation's largest operator of carbon-free nuclear plants. 

As an electricity producer and supplier with a capacity of 32,400 MW, Constellation Energy offers environmental-friendly energy solutions to a diverse client base that includes roughly three-fourths of Fortune 100 companies. Its market cap currently stands at $53.3 billion.

Shares of CEG are up 118% over the past 52 weeks, significantly outperforming the S&P 500 Index’s ($SPX) 34% return over this time frame.

The stock is currently trading at 22.08 times forward earnings and 2.58 times forward sales, compared to the utilities sector median valuations of 15.85x and 1.83x, respectively.

Constellation Energy's current annual dividend is now $1.41 per share, and yields 0.84%. That follows a 25% increase to the quarterly payout as of this month, which puts CEG on pace to exceed its targeted annual dividend growth rate of at least 10%.

Moreover, after completing its first $1 billion stock repurchase last year, the company’s board approved another $1 billion repurchase program, with $150 million already utilized.

Constellation Energy Reports Strong EBITDA Growth

The stock’s YTD gains are due in large part to Constellation Energy’s positive earnings reaction in late February. Q4 operating revenue declined 21% year-over-year to $5.8 billion, but beat the consensus estimate of $5.67 billion. And while the company’s per-share net loss fell short of expectations, the stock rallied sharply as investors reacted to stronger-than-forecast EBITDA and robust guidance for the full fiscal year.

Specifically, CEG reported a Q4 net loss of $36 million, or $0.11 per share, while the consensus estimate called for a profit of $1.70 per share. However, Q4 adjusted EBITDA surged 88% to $1.14 billion, which comfortably beat the Street’s expected $1.04 billion. 

Constellation Energy also guided for 2024 adjusted EPS in the range of $7.23 to $8.03, which crushed the consensus forecast on Wall Street for full-year EPS of $6.38.

The company said it’s targeting long-term base EPS growth of at least 10% through the decade, supported by the nuclear production tax credit in the Inflation Reduction Act.

During the fourth quarter, Constellation expanded its fleet of carbon-free generation by acquiring a partial ownership stake in the South Texas Project Nuclear Plant

Notably, from 2022 to 2023, the company’s nuclear fleet achieved a 94.6% capacity factor, approximately 4% above the recent industry average. This incremental increase in output relative to industry peers equates to having another reactor’s worth of power, or $335 million in additional annual revenue, according to Constellation.

What Do Analysts Expect for Constellation Energy Stock?

Following the release of Constellation Energy's Q4 results and well-received guidance, KeyBanc Capital Markets upgraded CEG from "Sector Weight" to "Overweight" with a $190 price target.

Out of the 11 analysts offering recommendations for the stock, seven rate it a “Strong Buy,” and four advise “Hold.” 

While CEG is currently trading at a premium to the average analyst price target of $145.70, the Street-high price target of $201 indicates that the stock could rally as much as 19.6% from current levels.

The Bottom Line on CEG Stock

Constellation Energy appears relatively expensive, given that the stock is trading above its mean price target and carries a higher P/E ratio, even after pulling back from its post-earning highs.

However, based on the nuclear energy company’s surprisingly strong growth forecast, the premium may be justified at current levels.

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On the date of publication, Sristi Suman Jayaswal 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.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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