We recently compiled a list of the 12 Best Electric Utility Stocks to Buy Now. In this article, we are going to take a look at where Constellation Energy Corporation (NASDAQ:CEG) stands against the other electric utility stocks.
Electric utility stocks are publicly listed companies that are overseen by government bodies. They generate revenue by supplying reliable energy to customers.
Morningstar energy and utilities strategists Travis Miller and Andrew Bischof find grounds to invest in utility stocks, stating that Utilities’ 2024 rally slowed in October as interest rates began to climb, but utilities stocks are still hanging on to their outstanding returns from the previous year. As of mid-February, the majority of US utilities are trading close to our estimates of their fair values.
Generally speaking, utility companies have high dividend yields and appear to be overpriced at the moment. According to Miller and Bischof:
“Utilities continue to grow their dividends at an impressive rate.” “Nearly all utilities have already announced dividend increases for 2025 or are on track to announce increases in the first quarter. We expect 5% median sectorwide dividend growth in 2025.”
Although they set their predictions below the mainstream, Miller and Bischof predict that the demand for electricity from data centers will almost double. They claim that the outlook for data center electricity demand is trending toward the bull-case scenario from their 10-year forecast in 2023. They stated:
“We remain below consensus forecasts as we believe several constraints—such as regulatory approvals, tight supply chains for equipment, and grid reliability during peak demand—will affect project timing and growth opportunities.”
The utilities sector, the worst-performing broader market group in 2023, recovered in 2024 as the power demand surged due to electrification, decarbonization, and artificial intelligence. The Energy Information Administration forecasts that global power consumption will climb by 75% by 2050, with data centers emerging as a main contributor.
Looking forward, according to Deloitte’s outlook, in 2025, the power and utilities sector will prioritize grid upgrading, nuclear expansion, distributed energy, workforce transformation, and carbon management. Secondly, increasing demand for electricity due to electrification and AI-powered data centers will force utilities to integrate clean energy sources and improve grid efficiency. Cost-sharing schemes and fair tariffs will be crucial. Partnerships and creative financial arrangements that solve waste and safety issues will hasten the implementation of nuclear power. Thirdly, distributed energy resources, such as virtual power plants and microgrids, will boost the efficiency and resilience of the system. Fourthly, utility companies will also make investments in workforce transformation, focusing on innovation-driven talent development, modular skills, and technology training to solve labor shortages. Lastly, notwithstanding technological and legal obstacles, utilities will increase carbon capture, storage, and offset programs in order to achieve decarbonization efforts. These tactics will assist utilities in striking a balance between cost-effectiveness, sustainability, and dependability in the face of rising electricity demand and changing energy regulations.
As per EY’s Power and Utilities Outlook 2025, the use of renewable energy and technology, as well as the modernization of infrastructure, present opportunities for utilities despite their high prices and growing demand.
A close up of a wind turbine producing electricity as the sun sets.
Our Methodology
We sifted through holdings of Electric Utility ETFs and online rankings to form an initial list of 30 Electric Utility stocks. From the resultant dataset, we chose the top 12 stocks most favoured by hedge funds, using Insider Monkey’s database of 1,009 hedge funds in Q4 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
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, CEG ranks 1st on our list of the Best Electric Utility Stocks to Buy Now. While we acknowledge the potential for CEG as an investment, 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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Disclosure: None. This article is originally published at Insider Monkey.