Constellation Energy is UBS’s top Inflation Reduction Act beneficiary pick. UBS says the power generator group will see a major long-term upside from a nuclear production tax credit that’s part of the climate measure . Starting in 2024 until 2032, utilities would be able to get a credit of $15 per megawatt-hour for electricity produced by their existing nuclear fleet. “We are buyers of CEG, which we believe is a significant beneficiary of the IRA, and this is not reflected in the current stock price,” analyst Ross Fowler wrote in a Tuesday client note. “The nuclear PTC significantly limits downside risks and should shift the risk premium implicit in valuation,” Fowler added. The analyst reiterated his buy rating for the stock. He also raised his price target to $110, implying a 32% upside from the stock’s last closing price on Monday. The tax credit sets an inflation adjusted $40 to $43.75 per megawatt-hour price for the volumes from CEG’s merchant nuclear fleet unless power prices fall below $25/MWh, according to UBS. Fowler said that a scenario in which power prices fall below $25/MWh is “highly unlikely for a sustained period.” “Given power is a marginal cost clearing market as electricity cannot be stored at grid scale, we do not see a realistic scenario where around the clock prices are sustainably below $25/MWh. The inflation adjustment in the PTC and natural operational leverage should mitigate risks to margins,” said Fowler. He added, “In fact, if inflation remains high, EBITDA margins could expand due to operational leverage.” Constellation shares rose more than 1% on Tuesday. The stock is down nearly 2% in 2023, and it’s up 83% over the past 12 months. — CNBC’s Michael Bloom contributed to this story.
