The company will surely be affected if a new pricing initiative from the federal government is successful.
An analyst at a prominent U.S. bank took a pair of scissors to his Constellation Energy (CEG 4.00%) price target on Tuesday, and investors reacted accordingly. After that cut was enacted, many sold out of the utility stock, leaving it with a 4% decline on the day.
Power move
Before market open, Shahriar Pourreza of Wells Fargo reduced his fair value assessment on Constellation to $460 per share. He previously flagged it as being worth $478. Despite the cut, he maintained his overweight (read: buy) recommendation on the energy company’s shares.
Image source: Getty Images.
It wasn’t immediately apparent why Pourreza became slightly more bearish on Constellation. It doesn’t seem coincidental, though, that it came days after the Trump administration announced a new push to build out new power-generation capacity in the Mid-Atlantic region.
Last Friday, the President’s National Energy Dominance Council (NEDC) announced it had signed an agreement with a group of regional governors to enact measures (such as price caps) to alleviate high energy prices.
The bulk of wholesale energy prices there are set by a so-called “regional transmission organization,” called PJM Interconnection, and approved by the Federal Energy Regulatory Commission (FERC).
In its words, the NEDC and the governors aim to “urge PJM to make electricity more affordable for residential customers and strengthen grid reliability by building more than $15 billion of reliable baseload power generation.”
Today’s Change
(-4.00%) $-12.31
Current Price
$295.40
Key Data Points
Market Cap
$96B
Day’s Range
$292.45 – $308.75
52wk Range
$161.35 – $412.70
Volume
6.1M
Avg Vol
2.7M
Gross Margin
19.30%
Dividend Yield
0.50%
The timing could be better
If successful, a top-down push to put a lid on energy prices would directly and negatively affect prices for top producers in the area, such as Constellation. It would also come at an uncomfortable time, as less than two weeks ago, the company closed its $26.6 billion acquisition of peer Calpine — which includes the assumption of roughly $12.7 billion of its new asset’s debt.
I wouldn’t necessarily push the panic button on Constellation stock yet, particularly considering it’s a top company in the currently hot nuclear energy space. This new push by the Feds is certainly worth monitoring, though.
Wells Fargo is an advertising partner of Motley Fool Money. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy. The Motley Fool has a disclosure policy.
