Citi Rates Constellation Energy ‘Neutral’, Flags Potential Hurdles With Three Mile Island Restart: Retail’s Bearish

Citi has reportedly initiated coverage of Constellation Energy Corp (CEG) with a ‘Neutral’ rating and a price target of $284. Constellation Energy shares were trading lower by over 2% on Tuesday.

Citi analyst Ryan Levine has warned that Constellation could face cost overruns and delays in restarting Three Mile Island, according to a CNBC report. “We think the permitting timeline could slip to the right given [a] complicated and challenging regulatory process,” the analyst said.

In September, Constellation Energy signed its largest-ever power purchase agreement with Microsoft Corp (MSFT) for the launch of the Crane Clean Energy Center (CCEC) and restarting the shuttered Three Mile Island Unit 1 for providing nuclear energy to the tech giant.

The Three Mile Island site witnessed a partial meltdown of one of its reactors in 1979 and hasn’t been in operation since 2019 when its other reactor stopped operations due to economic reasons.

Under the 20-year power purchase agreement, Microsoft will purchase energy from the renewed plant as part of its goal to help match the power its data centers in PJM use with carbon-free energy.

Constellation CEO Joe Dominguez had said that before it was prematurely shuttered due to poor economics, the plant was among the safest and most reliable nuclear plants on the grid. “…we look forward to bringing it back with a new name and a renewed mission to serve as an economic engine for Pennsylvania,” he had said.

Meanwhile, Citi analyst Levine noted that a month’s delay of the project could shave $0.09 off Constellation’s stock while every $1 million of recurring cost overruns could impact the stock by $0.04.

According to the analyst, Constellation could face challenges making deals to directly power data centers with its nuclear reactors. “Our caution is based on local politics, residential bill impact, ancillary services, backup generation needs, and reliability,” Levine said.

Constellation Energy shares have soared nearly 130% this year so far, significantly outperforming the S&P 500 and the Nasdaq.

However, retail investors on Stocktwits remained ‘bearish’ on the stock as on Tuesday noon.

One Stocktwits user with a bearish outlook on the firm believes the stock is overvalued at current levels.

Also See: UBS Boosts S&P 500 Year-End Target To 5,850, Fueled By Corporate Profits And Rate Cuts

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