Constellation Energy Price Target Increased by Wells Fargo & Morgan Stanley Following TMI Restart

Both Wells Fargo and Morgan Stanley have raised their price targets for Constellation Energy Group, Inc. (CEG) following the recent announcement about the restart of the Crane Clean Energy Center, formerly known as the Three Mile Island Unit 1.

This adjustment comes in light of a 20-year power purchase agreement (PPA) with Microsoft, which underlines the growing demand for clean energy from major tech companies.

Wells Fargo increased its price target for CEG from $250 to $300, pointing to Microsoft’s commitment to decarbonization and its willingness to pay a premium for dependable nuclear energy. The bank estimates that the Crane plant could contribute an additional $400-450 million annually to net income once it reaches full operational capacity in 2028.

Moreover, Wells Fargo projects a robust 20% internal rate of return (IRR) on the project, noting that the announcement demonstrates Big Tech’s readiness to pay such premiums.

Morgan Stanley also raised its price target for CEG, elevating it from $233 to $313. The firm highlighted the importance of the PPA, which allows for a price of approximately $100/MWh, significantly higher than current market rates of $50/MWh. Morgan Stanley sees this as a positive signal for future nuclear power contracts, predicting an increase in prices for upcoming deals.

According to Morgan Stanley, the operational risks of bringing the plant online appear manageable, given the long duration of the contract and the strength of the counterparty. They stated that adding nuclear power to the grid supports emissions-free energy generation around the clock, which has garnered significant political backing.

Analysts believe that this agreement demonstrates the value of nuclear power for large technology companies, indicating that higher prices could be expected for future contracts. They further suggested that future data center agreements involving nuclear plants may command even higher prices when built alongside existing facilities, taking advantage of the efficiencies gained from constructing at established locations.