Constellation Energy is the IBD Stock of the Day after the clean-energy provider broke out above a buy point Wednesday. Shares climbed to a record high Friday, but closed in a buy zone.
Constellation is the nation's largest producer of carbon-free energy. The company says 90% of its capacity is carbon-free energy, or about 10% of the total U.S. clean-energy supply. Most of Constellation's power comes from nuclear (86%) and natural gas plants (11%). The company also has wind, solar and hydroelectric power generation.
Baltimore-based Constellation is part of IBD's alternative energy industry group, which has nearly doubled year to date. The group has ranked in the top 10 of 197 IBD groups for at least three months.
It's not just the push toward renewable energy or EV adoption that's behind all that. Electricity demand is surging as major tech companies expand and upgrade data centers to handle artificial intelligence applications.
Use by data center customers jumped 45% in the first half of this year, vs. the first half of last year, CEO Joseph Dominguez told analysts in the Aug. 7 earnings call.
"This step-up in usage is probably not unique to Constellation, but it is indicative of the increased demand coming from the data economy ..." he added.
Constellation plans to spend heavily on nuclear generation in Pennsylvania, which the Trump administration has targeted as a major hub for artificial intelligence data centers. White House policies favor reviving nuclear power and beating China in the AI race.
Constellation Energy Supplies Meta, Microsoft
In June, the company signed a 20-year deal to provide Meta Platforms with energy from an Illinois plant to operate its data centers.
Last year, Constellation reached a similar agreement with Microsoft and plans to restart one of the reactors at the Three Mile Island nuclear plant to supply Microsoft. The Pennsylvania plant's other reactor had a partial meltdown in 1979 that was the worst nuclear accident in U.S. history.
In January, Constellation agreed to acquire Calpine, the nation's largest operator of efficient natural gas and geothermal electrical generators, in a cash and stock deal valued at $16.4 billion. The deal is expected to close by the end of the year.
Constellation will announce third-quarter earnings the morning of Nov. 7. Analysts expect earnings of $3.10 a share, an increase of 13.2%, according to FactSet. Sales are expected to edge higher to $6.564 billion.
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For the full year, analysts expect earnings to rise 10.1% to $9.55 a share, with sales rising 3.8% to $24.473 billion.
Last week, Scotiabank initiated coverage of the stock with an outperform rating and 401 price target. Analysts cited bullish fundamentals on independent power producers, thanks to a robust outlook for electricity demand and strong cash flow generation, TheFly.com reported. Constellation, Scotiabank's top pick, is the leader in almost every metric in the sector.
CEG Stock Analysis
Losses in 2021 and 2022 push down Constellation Energy's EPS Rating to 36. They also hurt its Composite Rating, which is 87.
The stock climbed above the 348.44 buy point of a cup-with-handle base Wednesday in volume 23% above average, IBD MarketSurge shows. The buy zone goes to 365.86. Shares hit a record 376.68 Friday intraday, but faded to up 0.7% at 360, in the buy area.
Shares pulled back to the 50-day moving average while forming the handle and rebounded through the buy point. The relative strength line is near a two-month high, a positive sign. The stock is up more than 60% year to date, sporting an 88 Relative Strength Rating.
Constellation Energy stock has a 21-day average true range (ATR) of 4.04%. The average true range, available on IBD MarketSurge, gauges the characteristic breadth of a stock's behavior. Stocks with a high ATR tend to make large price moves that can trigger sell rules. Stocks with lower ATRs tend to make more incremental moves.
With the S&P 500 and Nasdaq now in a power trend, investors can buy stocks with ATRs up to 8%, though they should not be too concentrated in such stocks.
