Nuclear Giant Surprises With 30% EPS Growth. Regulators Turn Cool On Amazon Nuke Deal

S&P 500 nuclear energy giant Constellation Energy (CEG) reported better-than-expected third-quarter earnings and revenue while also narrowing its 2024 profit expectations early Monday even as energy regulators rejected a nuclear deal between Amazon.com (AMZN) and Talen Energy (TLNE) late Friday.

Constellation Energy saw Q3 earnings grow 28% to $2.74 per share while sales totaled $6.55 billion, up 7% compared to a year ago. Prior to Monday, analysts predicted third-quarter EPS earnings of $2.66 and revenue coming in at $5.71 billion.

The company on Monday also raised the midpoint and narrowed full-year 2024 earnings guidance to between $8.00 – $8.40 per share. In early August, Constellation Energy increased its full-year profit guidance to between $7.60-$8.40 per share for 2024. Constellation Energy’s previous view was $7.23-$8.03 per share.

The company said Monday that its Q3 earnings increase was primarily due to its nuclear energy offerings and “favorable net market and portfolio conditions.” The company’s nuclear fleet produced 45,510 gigawatt-hours in Q3, up 3% compared Q3 2023.

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“The importance of AI and the data economy to America’s economic competitiveness and national security can’t be overstated, and Constellation will do our part to meet the moment,” Constellation Energy Chief Executive Joe Dominguez said in the earnings release Monday.

Dominguez added on the conference call with analysts Monday that the “intensity of our negotiations with hyperscalers and others keeps going up and up.”

“Our entire team is focused on executing transactions and supporting data centers development,” the Constellation Energy head said.

Constellation management also said on the earnings call Monday that base earnings will grow by at least 13% through 2030. In May, Constellation said it would grow profit by at least 10% through the end of the decade.

S&P 500 Catches Nuclear Fever

Nuclear energy-related plays have been on a tear since late September when Constellation Energy announced a two-decade contract with Microsoft (MSFT) to provide nuclear power for the tech giant’s data centers.

Then in October, Amazon.com (AMZN) and Alphabet (GOOGL) also announced decisions to invest in developing the emerging small modular reactors, or SMRs, technology. SMRs do not currently exist but there are a number of companies working to develop the technology.

Amazon in March made an early move toward nuclear, paying $650 million for a Talen Energy (TLNE) nuclear-powered data center campus in Pennsylvania. However, the Federal Energy Regulatory Commission on Friday rejected the deal, citing possible “huge ramifications for both grid reliability and consumer costs,” FERC Commissioner Mark Christie.

Electric utilities, especially those with nuclear power plants have seen demand and prices soar amid energy-intensive AI data centers. The FERC order suggests that regulators, worried about the “ramifications,” may block or restrict even co-location deals.

Nuclear stocks broadly lost ground Monday on the news. Constellation Energy sank 12.5% to 225.95 during market trade on Monday after closing on Friday down 1.9%. The stock advanced 1% in October after rallying 32% in September.

Meanwhile, S&P 500 leader Vistra (VST) reports earnings early Thursday, along with several other nuclear-related companies. Analyst consensus puts Vistra Q3 EPS ahead 9% to $1.64 on revenue of $5.01 billion, up 22% vs. Q3 2023. Vistra, a nuclear power utilities play, reports before the market opens on Thursday.

Vistra dropped 3.2% to 115.71 Monday. The stock fell 4.4% on Friday. VST has also been in reported discussions for power deals at both its nuclear and natural gas-powered plants.

Dominguez said on Monday’s earnings call that the ruling is “not the final word from FERC on co-location” of data centers at nuclear power plants.

“We know this co-location and competitive markets remains one of the best ways for the U.S. to quickly build the large data centers that are necessary to lead on AI,” Dominguez said.

Going into Monday’s market trade, shares of Constellation Energy and Vistra had surged around 26% and 30%, respectively, since the Microsoft-Constellation Energy deal on Sept. 20.

VST stock is up 210% on the year while Constellation Energy has advanced about 120%.

AI And Nuclear Energy

So far in 2024, nuclear power and utility stocks have been riding the artificial intelligence energy wave.

Artificial intelligence — and the data centers needed to train the systems — are expected to boost energy demand throughout this decade. In the U.S., McKinsey & Co. projects that data center energy demand will grow from around 4% currently, as percentage of total energy demand, to 11%-12% by 2030.

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Many technology companies are investing in or partnering with nuclear power providers to ensure energy supplies for their data centers.

Morgan Stanley analysts have proclaimed in recent months that a “nuclear renaissance” is underway.

They wrote that nuclear power, while still a divisive issue, is making a comeback. The firm sees $1.5 trillion in investment in new capacity through 2050.

Meanwhile, Morgan Stanley analysts wrote that the Constellation-Microsoft deal “proves out the value of nuclear power for hyperscalers, with higher prices for future deals.”

The Microsoft Deal

Constellation Energy said in September it will fire back up Pennsylvania’s Three Mile Island Unit 1, which ended operation in 2019, to provide the necessary energy to meet Microsoft’s needs over the life span of the 20-year contract. The company estimates the reactor will add 835 megawatts to the grid.

The Three Mile Island Unit 1 reactor is adjacent to the Unit 2 reactor, which shut down in 1979 after a partial meltdown at the nuclear power plant.

Accidents at Three Mile Island, Chernobyl and Fukushima loom large in the minds of utilities and their insurers. In addition, long-term safety and environmental concerns over storing and disposing of spent radioactive fuel rods create resistance to new nuclear development. Nuclear power has declined in recent years, with 13 plants closing since 2013.

Constellation Energy announced at the time that to restart the Three Mile Island reactor, “significant investments will be made to restore the plant, including the turbine, generator, main power transformer and cooling and control systems.”

The process also requires U.S. Nuclear Regulatory Commission approval following a comprehensive safety and environmental review, as well as permits from relevant state and local agencies.

Constellation Energy said Monday it expects the project to require around $1.6 billion of cash from operations for capital expenditures, with an estimated in-service date of 2028.

Founded in 1999, Constellation Energy has gone through several phases. After an earlier stint as a public company, it merged with Exelon in 2012 as part of a deal worth roughly $8 billion. While with Exelon, the company’s moniker became Constellation Energy Generation. It then split from the utility giant in early 2022.

Constellation Energy owns 25% of U.S. nuclear power reactors. Further, it provides energy to more than 20% of the major commercial and industrial customers in the country.

Nuclear Power Stocks Skid On This Regulatory Move

Nuclear Stocks Take Off

Small modular reactor-focused companies have taken off recently. Shares of Oklo (OKLO) — the nuclear power startup backed by OpenAI head Sam Altman — surged 177% in October. Nano Nuclear Energy (NNE) advanced 35% last month.

Meanwhile, NuScale Power (SMR) gained 65.3% in October.

NuScale Power reports third-quarter earnings and revenue late Thursday with analysts expecting a loss of 14 cents, down from a 22-cents per share loss a year ago. Sales are expected to fall 44% to $3.9 million.

Constellation Energy executives on Monday told analysts that they “continue to lead research on new nuclear energy designs such as our SMRs and for natural gas with sequestration.”

Uranium refiner Cameco (CCJ) also announces third-quarter earnings on Thursday. Analyst consensus projects Q3 EPS declining 17% to 19 cents with revenue totaling $562 million, up 36% compared to a year ago.

Canada-based Cameco is one of the world’s largest providers of uranium with utilities around the globe relying on the company to provide nuclear fuel solutions.

Constellation Energy stock has an 89 Composite Rating out of a best-possible 99. The S&P 500 stock also has a 97 Relative Strength Rating and a 54 EPS Rating.

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