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Investing.com -- Citi downgraded Constellation Energy (NASDAQ:CEG) shares to Neutral from Buy, citing limited near-term upside following the stock’s recent rally and the announcement of a power purchase agreement (PPA) with Meta (NASDAQ:META).
The energy firm’s shares fell 2.6% in premarket trading on Wednesday by 08:21 GMT.
According to Citi analyst Ryan Levine, the Meta deal marked a significant shift in the power contracting landscape but also prompted a reassessment of valuation assumptions.
The 20-year virtual PPA at the Clinton nuclear plant in Illinois will begin in June 2027 and is priced in the range of $70 to $95 per megawatt-hour, according to Citi’s estimates.
The agreement adds approximately $12 per share of value versus a no-deal scenario but does not offer a substantial premium for low-carbon nuclear power.
Levine highlighted the lack of a geographic proximity requirement as a notable feature of the deal.
“This deal has broad implications on the power markets as it signals future contracting activity,” he wrote in a note.
However, the analyst now believes much of the benefit from such agreements is priced into the stock, which has surged since Citi’s prior upgrade in April.
While lowering the rating, Levine raised the price target on Constellation Energy shares to $318 from $232 to reflect the increased scarcity value of the company’s existing nuclear fleet and the potential for additional datacenter deals.
Citi’s updated valuation now assumes that “~70% of CEG existing nuclear plants with license expiring before 2045” could secure similar datacenter deals at around $80/MWh, with an uplift in EV/EBITDA multiples to reflect their increased scarcity value.
Yet with the stock closing at $313.42 on June 3, the implied return is just 2%, including dividend yield.
Levine sees a “balanced risk to the upside and the downside” for CEG, and maintains a High Risk classification on the stock due to volatility in power prices, policy uncertainty, and execution challenges related to plant restarts.
