Bernstein: Long-term power supply agreements continue to increase, Constellation Energy's (CEG.US) future revenue outlook is clearer, "Outperform" rating maintained.

Bernstein noted in a research report released on November 9 that U.S. nuclear power operator Constellation Energy (CEG.US) delivered strong third-quarter results, with earnings per share significantly beating market expectations, and the company raised its full-year earnings guidance for the second time this year. Meanwhile, as AI data centers drive continued growth in electricity demand, Constellation Energy has signed multiple long-term power supply agreements with tech giants such as Amazon.com, Inc. (AMZN.US) and Alphabet Inc. Class C (GOOGL.US), further enhancing the visibility of future revenue. Bernstein maintained its "Outperform" rating on the stock with a price target of $296. The earnings report showed that Constellation Energy's third-quarter 2026 GAAP earnings per share were $5.19, up 74.7% from $2.97 in the prior-year period, beating market expectations of $3.8 by approximately 36.6%. Adjusted operating earnings per share were $5.06, up 66.4% from $3.04 in the prior-year period, also beating market expectations of $3.86 by approximately 31.1%. Bernstein noted that the strong results were mainly driven by favorable power market conditions, higher capacity revenue, excellent commercial business performance, and contributions from the Calpine business. However, lower nuclear production tax credit revenue partially offset these positive factors. Benefiting from the earnings beat, Constellation Energy raised its fiscal 2026 adjusted operating earnings per share guidance to $12.5 to $12.8 from the previous $11.5 to $12.5. This is the company's second upward revision to full-year earnings guidance this year. The midpoint of the new guidance range is $12.65, approximately 5.4% higher than the previous $12, and also above the media-compiled market consensus of $12.04. Beyond short-term performance, Bernstein believes that accelerating momentum in long-term power supply contract signings is another highlight of this earnings report. Data showed that Constellation Energy signed approximately 4,560 megawatts of long-term agreements in the third quarter, bringing the total scale of long-term agreements signed year-to-date to approximately 8,500 megawatts. Bernstein believes these agreements further highlight the premium value of existing Clean Energy Fuels Corp. generation assets amid continued growth in electricity demand. Among them, Constellation Energy signed a 20-year, 690-megawatt power purchase agreement and related retail electricity supply agreement with Amazon.com, Inc. The agreement will support the company's investment of more than $3 billion in the Calvert Cliffs nuclear facility, including a planned 190-megawatt capacity expansion project to be completed between 2030 and 2032. Meanwhile, Constellation Energy entered into a long-term strategic partnership with Alphabet Inc. Class C, signing a 20-year power purchase agreement that will support more than $4.3 billion in nuclear power investment. The related projects are expected to add approximately 890 megawatts of nuclear capacity, with the first uprate project planned to launch in 2028. The two parties also signed a 15-year, 2,700-megawatt financial load-following agreement to meet the energy needs of large power customers. In addition, Constellation Energy launched a new power solution called Peak+, and signed its first 20-year, 270-megawatt agreement, which will begin execution in 2028. The solution combines new generation capacity, demand response mechanisms, and customized energy supply, primarily targeting large corporate customers with significant electricity consumption. In terms of expanding power supply capacity, Constellation Energy also agreed to acquire Shell Energy North America's Rhode Island State Energy Center for $715 million. The natural gas combined-cycle power plant has a capacity of 609 megawatts, and the transaction remains subject to regulatory approval and customary closing conditions. Upon completion, the asset will be incorporated into Constellation Energy's merchant generation portfolio. On the financing side, the company has signed a conditional commitment agreement with the U.S. Department of Energy's Office of Related Financing to obtain a loan guarantee of up to $5 billion to support nuclear facility uprate projects. Management stated that this financing arrangement is expected to provide a lower-cost, longer-tenor funding source for future growth projects. On capital returns, Constellation Energy has repurchased approximately 11 million shares year-to-date, deploying approximately $3 billion. Bernstein believes that Constellation Energy's third-quarter earnings beat, upward revision to full-year earnings guidance, and continued increase in long-term power supply agreements collectively constitute positive signals. As major tech companies ramp up AI infrastructure investment and demand for stable, reliable, and low-carbon power supply continues to grow, the strategic value of Constellation Energy's existing nuclear assets is expected to further increase. However, the firm also noted that the company still faces certain risks going forward, including whether uncontracted generation capacity can be locked into long-term contracts at attractive prices as tax credits phase out, potential delays in new nuclear capacity projects, and the possibility of a significant decline in capacity prices in the U.S. PJM power market. Bernstein maintained its "Outperform" rating and $296 price target on Constellation Energy. Based on the November 6 closing price of $249.95, the price target implies approximately 18% upside potential.