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Constellation Energy Corp (NASDAQ:CEG) shares are down more than 5% Tuesday following a downgrade to neutral from Buy by BofA analysts.
The analysts also cut the firm’s price target on the stock to $88 from $104 per share.
They told investors in his research note that they have been bullish on shares since before the spin-off from Exelon Corp (NASDAQ:EXC) in February 2022, but the latest increase in operating costs, maintenance capex, and nuclear fuel investment “highlights that the Federal Production Tax Credit (PTC) only provides protection on the ‘pricing’ element.”
Constellation, the largest producer of carbon-free energy in the U.S., announced on Tuesday that it will invest $800 million in new equipment to increase the output of its Braidwood and Byron Generating Stations in Illinois by approximately 135 megawatts.
“We lower our annual adjusted EBITDA estimates sharply embedding higher operating cost (O&M), maintenance capex, and nuclear fuel costs as well as the mid-February power curves which are lower than 12/31/22 guidance,” the analysts wrote.
“The increase in nuclear fuel capex has a more meaningful impact on cash flows rather than adjusted EBITDA due to the accounting convention for amortization included as a cost of sales,” they added. “We revise our adjusted EBITDA -5% in 2024 ($3.5Bn below ~$3.7Bn implies guidance), -9% in 2024, -11% in 2025, and -14% in 2026. Our $3.5-$3.7Bn 2024-2026 adjusted EBITDA is still 3-6% above Consensus but there is less cushion versus Street than before.”
