Constellation Energy's Microsoft Deal Sparks Long-Term Growth: Analysts Raise Price Forecasts Amid Nuclear Revival

Constellation Energy Corporation CEG shares are trading relatively flat today after jumping more than 22% after the company signed a 20-year power purchase agreement with Microsoft on Friday.

The deal entails the launch of the Crane Clean Energy Center (CCEC) and the restart of Three Mile Island Unit 1, which was closed five years ago.

Following the announcement, several analysts raised the price target on the stock.

KeyBanc analyst Sophie Karp maintained an Overweight rating and raised the price target from $230 to $265.

The analyst writes that the deal allows for reevaluating other parts of CEG’s portfolio, and they expect continued positive momentum for the shares.

Nuclear generation has unique scarcity characteristics that are difficult to replicate at scale, positioning CEG to leverage its asset base and expertise as the country’s largest nuclear operator, says the analyst.

Although the company did not disclose the offtake price, Karp estimates that it needs to be around $120/MWh to achieve a projected increase in “base” EPS CAGR from 10% to 13% between 2024 and 2030.

The analyst writes that the price is a significant premium over current PJM power curves and exceeds the estimated ~$60/MWh gross receipts from CEG’s PJM fleet based on recent capacity pricing.

The analyst updated the estimates based on the second-quarter results, revised power and capacity prices, and operating assumptions.

The impacts of the MSFT deal will be outside the forecast horizon, as the plant is expected to restart in 2028, adds the analyst.

Apart from this, Evercore ISI maintained an Outperform rating, with an increased price target to $254 from $212.

Maintaining an Overweight rating, Wells Fargo increased the price target to $300 from $250 and Morgan Stanley to $313 from $233.

Investors can gain exposure to the stock via Strive Natural Resources and Security ETF FTWO and Virtus Reaves Utilities ETF UTES.

Price Action: CEG shares are down 0.12% at $254.69 at the last check Monday.

Photo by metamorworks via Shutterstock

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