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Wall Street JournalConstellation's ROE Exceeds Industry at 15.49X: How to Play the Stock
Constellation Energy’s CEG trailing 12-month return on equity of 15.49% is better than the industry average of 12.53%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
CEG continues to add clean energy to the grid through the efficient operation of nuclear plants and the extension of the lives of existing plants through new licenses. Clean electricity demand is rising and Constellation Energy’s ability to produce and supply a high volume of emission-free electricity from its nuclear plants will benefit the company.
CEG Stock Returns Higher Than the Industry
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Courtesy of strong commercial performance through portfolio optimization and customer margins, Constellation Energy has outperformed its sector and the S&P 500 in the year-to-date period.
CEG Stock’s Price Performance (YTD)
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The chart below indicates that CEG stock is riding above the 50-day simple moving average (SMA), signaling a bullish trend.
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Factors Acting as Tailwind for Constellation Energy Stock
Constellation Energy’s primary power production comes from its nuclear fleet and it is well-positioned in terms of nuclear fuel. The company has created a diverse and resilient portfolio that can withstand the Russian supply disruption and has engaged in multiple long-term uranium supply contracts running well into the 2030s. These steps will ensure continued production from its nuclear fleet.
Constellation’s fleetwide capacity factor has remained more than 94% over the past decade, or about 4% higher than the industry average. Demand for clean electricity produced by Constellation Energy is on the rise as it continues to support the system amid low production from renewable projects, even when demand is high. The long-term power supply deal with Microsoft Corporation MSFT indicates the willingness of the big companies to reduce their carbon footprint. So, the demand for clean energy will keep on rising, creating more opportunities for Constellation.
The company operates nuclear plants safely, efficiently and reliably. The company plans to invest nearly $5.1 billion during 2024-2025. The fresh investment will be directed to improve capacity in its existing nuclear power plants. Improvement in capacity at nuclear plants could add up to one gigawatt of new clean energy capacity over the next decade and assist the company in meeting the greater need for clean energy demand.
Constellation Energy is also benefiting from artificial intelligence (AI) and data center-driven clean power demand. Per a Business Insider report, major tech companies are going to invest nearly $1 trillion in data centers in the next five years. CEG can gain from rising clean energy demand from data centers as AI-driven data centers require more electricity than traditional data center racks.
Constellation Energy Raises Shareholder Value
Constellation Energy continues to make share repurchases and has repurchased shares worth $1 billion year to date. It has $1 billion remaining under its share repurchase program. The company has more than $2.3 billion of capital left to be allocated for 2024 and 2025.
It 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.
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Constellation Energy’s Earnings Estimates Move Up
The Zacks Consensus Estimate for CEG’s 2024 earnings per share has moved up 3.9% to $7.95 per share in the past 90 days. The upward revisions in earnings estimates indicate analysts’ increasing confidence in the stock.
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Summing Up
Constellation Energy is benefiting from the increasing demand for clean energy in its service territories, driven by the development of AI-driven data centers. CEG’s strong production capacity will allow it to meet rising demand.
Those who already own this Zacks Rank #3 (Hold) stock would do well to retain it in their portfolio and enjoy the benefits of dividends, share buybacks and rising earnings estimates.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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