Constellation Energy Corporation (CEG - Get Rating) has been on a remarkable run this year. The stock has surged 72.2% year-to-date, outpacing the broader market. As the largest owner of nuclear plants in the U.S., CEG is benefiting from a growing demand for clean energy solutions, particularly nuclear power.

The technology sector’s increasing reliance on nuclear energy to meet the power demands of data centers, especially those supporting AI and advanced technologies, has further bolstered the company’s prospects. To position itself for sustained growth, CEG has planned to invest approximately $5.1 billion over the 2024-2025 period to enhance its infrastructure and secure essential nuclear fuel.

In the second quarter ended June 30, 2024, CEG reported a modest year-over-year increase in operating revenues, reaching $5.47 billion. Its operating income grew 64.4% from the year-ago value to $1.10 billion, and its net income (on a non-GAAP basis) came in at $814 million, slightly below the $833 billion reported in the prior year’s quarter.

The company reported adjusted operating earnings per share of $1.68, up 2.4% year-over-year. Moreover, its cash, restricted cash, and cash equivalents at the end of the period amounted to $383 billion, reflecting a 17.8% improvement from the same period last year.

Thanks to this strong financial momentum, the company raised its full-year adjusted (non-GAAP) earnings guidance to $7.60 to $8.40 per share from the previous guidance of $7.23 to $8.03 per share. Additionally, CEG accelerated its share buyback efforts, repurchasing another $500 million in shares during the second quarter, bringing the total to $1 billion for the year.

With this positive financial outlook, the stock has delivered an impressive gain of 83.1% over the past year, closing the last trading session at $201.23. Here’s what could influence the performance of CEG in the upcoming months:

Mixed Analyst Estimates

Analysts expect CEG’s EPS to increase 27.6% year-over-year to $2.54 for the third quarter ending September 2024. However, its revenue for the current quarter is expected to decrease by 38.8% year-over-year to $3.74 billion.

Similarly, for the fiscal year ending December 31, 2024, CEG’s revenue is expected to decline 16.7% year-over-year to $20.77 billion. The company is estimated to post earnings per share of $7.97 in the current year, indicating a 49.3% improvement from the prior year period.

Stretched Valuation

In terms of forward non-GAAP P/E, CEG is trading at 25.24x, 42.7% higher than the industry average of 17.69x. Its forward EV/EBITDA and Price/Sales of 16.10x and 3.03x are 42.4% and 36.9% higher than the respective industry averages of 11.30x and 2.21x. Furthermore, the stock’s forward Price/Book multiple of 5.15 compares with the industry average of 1.76.

Mixed Profitability

In terms of the trailing-12-month gross profit margin, CEG’s 19.55% is 56.7% lower than the 45.10% industry average. Likewise, its trailing-12-month EBITDA margin of 23.27% is 36.4% below the industry average of 36.55%.

On the other hand, CEG’s trailing-12-month asset turnover ratio of 0.48x is 121.7% higher compared to the industry average of 0.22x. Similarly, its 21.08% trailing-12-month Return on Common Equity is 119.4% more than the industry average of 9.61%. Furthermore, the stock’s 8.80% trailing-12-month ROTC compares to the industry average of 4.03%.

POWR Ratings Exhibit Mixed Prospects

CEG’s stance is apparent in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CEG’s stock is trading above its 50-day and 200-day moving averages of $189.15 and $172.37, respectively, justifying its B grade for Momentum. Yet, the stock received a C for Quality, corresponding with its mixed profit margins.

On the other hand, CEG has a D grade for Value, which is in sync with its stretched valuation.

CEG is ranked #32 out of 59 stocks in the Utilities – Domestic industry. Click here to access CEG’s Growth, Stability, and Sentiment ratings.

Bottom Line

The increasing demand for clean energy, driven by the expansion of AI-powered data centers, positions the company to capitalize on future growth. Its focus on securing power purchase agreements for these energy-intensive centers could further boost its stock performance.

However, after a strong first-half rally, CEG’s stock trades at a premium compared to other utilities. While the company’s growth prospects remain solid, its current valuation suggests limited upside potential. Thus, waiting for a better entry point into the stock could be beneficial for investors.

How Does Constellation Energy Corporation (CEG) Stack Up Against Its Peers?

While CEG has an overall grade of C, equating to a Neutral rating, you may check out these B (Buy) rated stocks within the Utilities – Domestic industry: Brookfield Infrastructure Corporation (BIPC - Get Rating) and Genie Energy Ltd. (GNE - Get Rating). To explore more Utilities – Domestic stocks, click here.

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

CEG shares were trading at $200.62 per share on Wednesday afternoon, down $0.61 (-0.30%). Year-to-date, CEG has gained 72.55%, versus a 19.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

More Resources for the Stocks in this Article