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Constellation Signs Long-term Agreement With Microsoft: Time to Buy?
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Constellation Energy (CEG - Free Report) recently announced that it has signed a long-term power supply agreement with Microsoft Corporation (MSFT - Free Report) . To meet the clean energy supply obligation, The company will launch the Crane Clean Energy Center (“CCEC”) and restart Three Mile Island Unit 1.
To meet the 20-year clean energy requirements of Microsoft, Constellation Energy will restart the nuclear-powered Three Mile Island Unit 1, which remained idle for five years for economic reasons.
This market accepted this news well with Constellation Energy’s shares gaining 22.3% in the intra-day trading. CEG has outperformed its industry in the year-to-date period.
Constellation Outperforms Industry YTD
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
The chart above indicates that the CEG stock is riding above the 50-day simple moving average (SMA), signaling a bullish trend.
How CEG Gains From Long-term Power Supply Agreement
Clean electricity demand is rising across industries, and Constellation Energy’s ability to produce a high volume of emission-free electricity from its nuclear plants is well-equipped to meet demand from the data centers.
Courtesy of this new power purchase agreement, Constellation Energy will restart its dormant nuclear power plant and supply 835 megawatts (MW) of clean energy to the grid. Microsoft to reduce its carbon footprints, will power its data centers in PJM by utilizing carbon-free energy generated from the nuclear power plant.
Data centers operate 24/7, 365 days a year, and electricity demand from these centers is destined to increase, as AI-based queries need substantially higher power than traditional Internet usage. The big tech operators will need reliable, clean power to operate data centers. Constellation’s long-term agreement with Microsoft shows its ability to efficiently serve the data centers.
This deal can create an opportunity for Constellation Energy to enter into more power supply agreements with other tech companies. Some big tech companies are in discussion with Constellation Energy’s management to shift their AI centers next to its nuclear plants for uninterrupted clean power supply.
Data Centers Growth to Create Opportunity for Constellation
Per a release from Statista, revenues from data centers are expected to witness a CAGR of 11.48% through 2029, resulting in a market volume of $212.1 billion by 2029. The PJM utilities have identified at least 50 GWs of data center load growth. The size of the data centers is also expanding, which is also creating more demand for clean electricity.
Constellation Energy expects to generate an additional $875 million net income in 2024-2025 through organic means like wind repowering, nuclear uprates, nuclear license renewals and clean hydrogen production. The restart of Three Mile Island Unit 1 due to the Microsoft deal will boost the earnings of the company.
Operating nuclear-powered generating units provides an additional advantage to Constellation Energy, as nuclear plants can reliably produce carbon-free energy 24/7 in all weather conditions and run for up to two years without needing to be refueled. These plants are a perfect fit to provide 24/7 electricity to the rising clean power demand from AI-driven data centers.
Constellation Boosts Shareholder Value
Constellation Energy continues to increase the value of its shareholders through share buybacks and payment of dividends. The company pays a quarterly dividend to its shareholders. The company aims to increase its dividend by 10% annually, subject to its board's approval. Check CEG’s dividend history here.
Constellation Energy has utilized $2 billion to repurchase nearly 16.1 million shares through Aug. 6, 2024. The company still has $1 billion remaining of the total authorized $3.0 billion share repurchase program, which, when utilized, will further increase shareholder value.
CEG Returns Higher Than the Industry
Return on invested capital (ROIC) has outperformed the industry average in the trailing 12 months. ROIC of CEG was 4.08% compared with the industry average of 1.92%. The company has been investing effectively in profitable projects, which is evident from its ROIC.
Image Source: Zacks Investment Research
Constellation’s Earnings Estimates Moving North
Courtesy of its strong year-to-date performance, Constellation Energy has raised its 2024 earnings per share guidance to $7.60-$8.40 from the prior mentioned $7.23-$8.03. The Zacks Consensus Estimate for CEG’s 2024 earnings per share moved to $8 per share, up 4.6% over the last 60 days. The upward revisions in earnings estimates indicate analysts’ increasing confidence in the stock.
Image Source: Zacks Investment Research
CEG Stock Trades at a Premium
Constellation Energy is currently trading at a premium compared with its industry on a forward 12-month P/E basis.
Image Source: Zacks Investment Research
To Sum Up
Constellation Energy is benefiting from the increasing demand for clean energy in its service territories, and a new power supply agreement with Microsoft will further strengthen the performance of the company.
The company is trading at a premium. It is better to remain invested in this Zacks Rank #3 (Hold) stock and enjoy the benefits of dividends and share buybacks.
Image: Bigstock
Constellation Signs Long-term Agreement With Microsoft: Time to Buy?
Constellation Energy (CEG - Free Report) recently announced that it has signed a long-term power supply agreement with Microsoft Corporation (MSFT - Free Report) . To meet the clean energy supply obligation, The company will launch the Crane Clean Energy Center (“CCEC”) and restart Three Mile Island Unit 1.
To meet the 20-year clean energy requirements of Microsoft, Constellation Energy will restart the nuclear-powered Three Mile Island Unit 1, which remained idle for five years for economic reasons.
This market accepted this news well with Constellation Energy’s shares gaining 22.3% in the intra-day trading. CEG has outperformed its industry in the year-to-date period.
Constellation Outperforms Industry YTD
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
The chart above indicates that the CEG stock is riding above the 50-day simple moving average (SMA), signaling a bullish trend.
How CEG Gains From Long-term Power Supply Agreement
Clean electricity demand is rising across industries, and Constellation Energy’s ability to produce a high volume of emission-free electricity from its nuclear plants is well-equipped to meet demand from the data centers.
Courtesy of this new power purchase agreement, Constellation Energy will restart its dormant nuclear power plant and supply 835 megawatts (MW) of clean energy to the grid. Microsoft to reduce its carbon footprints, will power its data centers in PJM by utilizing carbon-free energy generated from the nuclear power plant.
Data centers operate 24/7, 365 days a year, and electricity demand from these centers is destined to increase, as AI-based queries need substantially higher power than traditional Internet usage. The big tech operators will need reliable, clean power to operate data centers. Constellation’s long-term agreement with Microsoft shows its ability to efficiently serve the data centers.
This deal can create an opportunity for Constellation Energy to enter into more power supply agreements with other tech companies. Some big tech companies are in discussion with Constellation Energy’s management to shift their AI centers next to its nuclear plants for uninterrupted clean power supply.
Data Centers Growth to Create Opportunity for Constellation
Per a release from Statista, revenues from data centers are expected to witness a CAGR of 11.48% through 2029, resulting in a market volume of $212.1 billion by 2029. The PJM utilities have identified at least 50 GWs of data center load growth. The size of the data centers is also expanding, which is also creating more demand for clean electricity.
Constellation Energy expects to generate an additional $875 million net income in 2024-2025 through organic means like wind repowering, nuclear uprates, nuclear license renewals and clean hydrogen production. The restart of Three Mile Island Unit 1 due to the Microsoft deal will boost the earnings of the company.
Operating nuclear-powered generating units provides an additional advantage to Constellation Energy, as nuclear plants can reliably produce carbon-free energy 24/7 in all weather conditions and run for up to two years without needing to be refueled. These plants are a perfect fit to provide 24/7 electricity to the rising clean power demand from AI-driven data centers.
Constellation Boosts Shareholder Value
Constellation Energy continues to increase the value of its shareholders through share buybacks and payment of dividends. The company pays a quarterly dividend to its shareholders. The company aims to increase its dividend by 10% annually, subject to its board's approval. Check CEG’s dividend history here.
Constellation Energy has utilized $2 billion to repurchase nearly 16.1 million shares through Aug. 6, 2024. The company still has $1 billion remaining of the total authorized $3.0 billion share repurchase program, which, when utilized, will further increase shareholder value.
CEG Returns Higher Than the Industry
Return on invested capital (ROIC) has outperformed the industry average in the trailing 12 months. ROIC of CEG was 4.08% compared with the industry average of 1.92%. The company has been investing effectively in profitable projects, which is evident from its ROIC.
Image Source: Zacks Investment Research
Constellation’s Earnings Estimates Moving North
Courtesy of its strong year-to-date performance, Constellation Energy has raised its 2024 earnings per share guidance to $7.60-$8.40 from the prior mentioned $7.23-$8.03. The Zacks Consensus Estimate for CEG’s 2024 earnings per share moved to $8 per share, up 4.6% over the last 60 days. The upward revisions in earnings estimates indicate analysts’ increasing confidence in the stock.
Image Source: Zacks Investment Research
CEG Stock Trades at a Premium
Constellation Energy is currently trading at a premium compared with its industry on a forward 12-month P/E basis.
Image Source: Zacks Investment Research
To Sum Up
Constellation Energy is benefiting from the increasing demand for clean energy in its service territories, and a new power supply agreement with Microsoft will further strengthen the performance of the company.
The company is trading at a premium. It is better to remain invested in this Zacks Rank #3 (Hold) stock and enjoy the benefits of dividends and share buybacks.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.