Constellation Energy PT raised at Wells Fargo & Morgan Stanley on TMI restart

Both Wells Fargo and Morgan Stanley have raised their price targets for Constellation Energy Group, Inc. (CEG) following last week’s announcement of the restart of the Crane Clean Energy Center, formerly known as Three Mile Island Unit 1.

The move is fueled by a 20-year power purchase agreement (PPA) with Microsoft, reflecting strong demand for clean energy from major tech companies.

Wells Fargo increased its price target for CEG from $250 to $300, citing Microsoft’s commitment to decarbonization and willingness to pay a premium for reliable nuclear power.

The bank highlighted the earnings potential, estimating the Crane plant will add $400-450 million annually to net income once fully operational in 2028.

Wells Fargo expects an impressive 20% internal rate of return (IRR) on the project, noting, “The Crane announcement highlights Big Tech’s willingness to pay such premiums.”

Morgan Stanley similarly raised its price target for CEG from $233 to $313, emphasizing the significance of the PPA, which locks in a price of around $100/MWh, a substantial premium compared to market rates of $50/MWh.

Morgan Stanley views this as a strong indicator of future nuclear power contracts, predicting higher prices for future deals.

“Operational risk to bring the plant online appears manageable, the contract is very long (20yrs) and with a strong counterparty,” said Morgan Stanley. “Bringing nuclear online supports the grid, with no emissions and 24×7 operations, and the move has generated strong political support.”

Analysts also think the deal “proves out the value of nuclear power for hyperscalers, with higher prices possible for future deals.”

Analysts also commented that “future data center contracts with nuclear plants could come at an even higher price when collocated, given the time advantage of building at an existing plan.”