Why Constellation Energy Stock Is Up More Than 30% in September

Actions of Constellation Energy (CEG 4.52%) rose 32.2% in September, according to data provided by S&P Global Market Intelligence. Fueling the energy company’s growth was a deal Microsoft (MSFT -0.14%) to restart a nuclear power plant. The deal could help spark a resurgence of nuclear power in the country, further accelerating Constellation’s already robust growth rate.

A powerful growth accelerator

Constellation Energy signed a 20-year power purchase agreement with Microsoft to launch the Crane Clean Energy Center. The power producer will restart Three Mile Island Unit 1, which closed for economic reasons five years ago. Microsoft will buy all the power nuclear energy factory produces to support data center operations.

The energy company will spend about 1.6 billion dollars for bring nuclear power plant back online, which is expected to take place by 2028. It will add more than 800 megawatts of carbon-free power to the gridsufficient to power 700,000 homes. Microsoft is paying a high price for this power (at least double the market going rate, according to analysts’ estimates), which will help offset the energy used by its data centers with carbon-free energy.

This strong price level will help accelerated power earnings growth for Constellation Energy in the coming years. The company expects to grow its earnings per share by at least 13% annually through the end of the decade, up from its previous outlook for annual earnings growth of 10%. That’s a robust growth rate for an energy company, given that most of its peers expect it to grow at a single-digit annual rate over the coming years.

Microsoft Agreement it is also spark optimism that Constellation will be able to expand its core nuclear power platform in the future to capitalize on growing demand for low-carbon energy. The company is watching adding small modular reactors and other new technologies to provide more power to data center customers.

A rising rating

Constellation Energy’s rally last month has shares trading at a premium valuation. It currently sells for nearly 34 times that forward P/E ratio. That’s much higher than the multiples of other large utility stocks, which are between 19.5 and 25. Still, the company is worth trading at a premium given its much faster growth. With more growth potential ahead, it’s worth a look for those looking for a path TO potential take advantage of the growing demand for low-carbon energy.