Constellation Energy Stock Climbs On BofA Upgrade Citing Undervaluation: Retail Sentiment Flips To Bullish

Shares of Constellation Energy rose over 3% in early trading on Thursday after Bank of America (BofA) Securities upgraded the stock citing significant growth potential that the market hasn’t fully recognised yet, lifting retail sentiment.

The brokerage has now given Constellation Energy a rating of ‘Buy’ from ‘Neutral’ increasing its price target to $269 from $237.

'We believe CEG offers a unique investment opportunity, with sustained double-digit growth, an asset mix and business model that provides clean, baseload generation, and a compelling valuation relative to peers,” BofA said in its research note. 

It added that CEG is in the best position to prosper from rising demand, tightening supply, and likely soon-to-come regulatory clarity, which is not reflected in its current share price making it undervalued. 

The analyst highlighted Constellation's role as a primary provider of clean energy, particularly as demand grows from data centers seeking sustainable power solutions, including nuclear energy options

Constellation Energy Sentiment and Message Volume on Dec 11 as of 10:13 a.m. ET | Source: Stocktwits

Retail sentiment around the stock has flipped to ‘bullish’ from ‘bearish’ a day ago while chatter remained at ‘normal’ levels. 

The optimism is tied to the company's recent plans to restart the 835-MW Three Mile Island Unit 1 nuclear generating station in Pennsylvania by 2028. 

The restart will cost an estimated $1.6 billion and is expected to meet federal 45Y clean energy tax credit eligibility. 

Microsoft has already committed to purchasing energy from the reactivated plant under a 20-year agreement to offset consumption from its data centers in the PJM Interconnection region. 

However, Constellation clarified that no Microsoft data centers are being planned to co-locate at the site.

Constellation projects this partnership with Microsoft will raise its annual base earnings per share growth rate from 10% to 13% between 2024 and 2030. 

The company also filed a complaint with the Federal Energy Regulatory Commission (FERC), urging the creation of new rules to streamline the connection of colocated customers, such as data centers, directly to power plants. 

Constellation claims existing guidelines allow utilities to block such developments unfairly, hindering its ability to expand.

Constellation Energy's stock price movement year-to-date. | Source: TradingView

The largest operator of nuclear power plants in the U.S. by total capacity has seen its stock value more than double this year, driven by soaring energy demands from Big Tech, which are aiming to reduce their carbon footprint.

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