1. Constellation Energy Corporation (NASDAQ:CEG)
Number of Hedge Fund Investors: 85
The Maryland-based electricity supplier and the Best Utility Stock, Constellation Energy Corporation (NASDAQ:CEG) produces electricity using hydroelectric, wind, solar, nuclear, and natural gas. Ryan Levine, a Citi analyst, boosted the stock’s price objective from $284 to $334 on February 19. The share price rise comes after the company’s impressive Q4 of 2024 results, which showed that elevated electricity prices, nuclear output, and lower taxes helped EPS of $2.44 beat analyst projections of $1.96. However, Citi noticed a decline in wholesale sales and a shortfall in free cash flow as a result of working capital adjustments.
In Q4 of 2024, Constellation Energy Corporation (NASDAQ:CEG) exceeded profit projections because of a surge in electricity consumption and reduced expenses. The business made a daring step in January when it paid $16.4 billion to acquire Calpine Corp., one of the largest power industry transactions in the US. While operating expenses decreased by 23.6%, Q4 adjusted earnings came in at $2.44 per share, exceeding the $2.15 projection. It anticipates profits per share of $8.90 to $9.60 in 2025.
The company’s capacity to supply the power requirements of AI data centers is its main source of expansion. This is mostly due to its nuclear fleet, which generates 41 million megawatt-hours of clean energy at a 95% capacity factor. The business can refuel outages in less than 20 days. Constellation Energy Corporation (NASDAQ:CEG) is advocating initiatives that incentivize consumers to use less electricity during peak hours in an effort to address power shortages in the PJM area. PJM is the regional power grid operator for parts of 13 states and DC, ensuring consistent electricity flow.
Alger Mid Cap Focus Fund has been positive on Constellation Energy Corporation (NASDAQ:CEG) because of its leading position in clean nuclear energy. The company has strong growth potential driven by electrification and AI, along with favorable market conditions and agreements. The fund stated the following in its Q3 2024 investor letter:
“Constellation Energy Corporation (NASDAQ:CEG) is the largest producer of clean energy in the U.S., with 32,400 Megawatts of capacity, 87% of which is nuclear generated. Its nuclear, hydro, wind, and solar facilities provide 10% of all clean energy on the U.S. grid and 22% of its clean baseload power. We believe the company stands to benefit from the increasing electrification of the U.S. economy. The rise of electric vehicles, data centers, and reshoring of American manufacturing is driving U.S. electricity load growth for the first time in nearly two decades. In our view, AI workloads are projected to significantly increase energy demand from data centers over the next few years. As American enterprises seek clean and reliable energy sources, nuclear power, which is carbon-free and dependable, stands out compared to intermittent renewables like wind and solar. Constellation, as an unregulated independent power producer, benefits from low fixed costs and can capture upside from rising electricity prices. We believe that potential opportunities for earnings growth include colocation (data centers near nuclear plants) and energy-matching programs with cloud providers willing to pay premium prices for nuclear energy. The Inflation Reduction Act also provides downside protection through a guaranteed minimum price for nuclear generation. During the quarter, shares contributed to performance from two events: 1) annual electricity auctions revealed tightening markets driven by increasing demand, driving higher pricing in the Middle Atlantic states, leading management to raise their fiscal 2024 earnings projections. 2) On September 20, 2024, Constellation Energy announced the signing of a 20-year power purchase agreement with Microsoft, which includes restarting Three Mile Island’s Unit 1 to supply energy.”
Overall, Constellation Energy Corporation (NASDAQ:CEG) ranks first on our list of the 12 Best Electric Utility Stocks to Buy Now. While we acknowledge the potential for CEG to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CEG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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