Constellation Energy Corp. shares were up about 13% in midday trading Feb. 27 after the nuclear plant operator introduced 2024 earnings per share guidance of $7.23 to $8.03 and $6 billion of free cash flow for 2024 and 2025 combined.
Thanks to a new production tax credit (PTC), the floor price for nuclear energy sold by Constellation in 2024 will be $43.75/MWh, which "provides our fleet with significant downside protection ... and the upside is unlimited," Constellation President and CEO Joe Dominguez said Feb. 27 during a fourth-quarter 2023 earnings call.
That upside, a provision for higher PTC revenues correlating to inflation, is also driving Constellation's 10% annual EPS growth target.
"In 2028, the difference in revenue between the 2% and 3% inflation cases is more than $750 million and in a 3% inflation case, our EPS growth rate would be in the mid- to high teens rather than the 10% we're talking about," Dominguez emphasized. "It's really quite significant."
Constellation is also exchanging adjusted EBITDA for EPS as its primary earnings metric to reflect the stability provided by the price floor.
"The free cash flow ... drives a unitized growth story," Dominguez said. "We all felt it a lot closer to an EPS-driven business and a more mature business than probably what we would have experienced with the volatility and variability of results that a lot of the [independent power producers] have had over time where they didn't have the certainty provided by the PTC in our core commercial business."
The company also hopes to pair the nuclear PTC with a $3/kg tax credit for hydrogen produced by power sources that do not emit carbon, but guidance from the US Treasury Department has put those plans on ice for now.
The proposed framework for the 45V PTC would require electricity that powers hydrogen production to come from new rather than existing clean sources, a concept known as additionality. Constellation and other nuclear generators had asked the Treasury to allow any hydrogen created using existing renewable energy resources to qualify for the PTC.
Constellation's planned $900 million production facility would be part of the Midwest Alliance for Clean Hydrogen hub, but Dominguez reiterated the company will nix the project absent significant changes in the final rule.
"We've stayed in the game on the hydrogen hub in Illinois because [the US Energy Department] has asked us to, and they're covering the cost, pending the outcome of the final rule," Dominguez said. "If we don't get the right final rule, we'll head into litigation, but we'll suspend further capital deployment or opportunities in hydrogen until we get an outcome from the courts."
Constellation reported fourth-quarter 2023 adjusted EBITDA of about $1.14 billion, up from $605 million in the year-ago period and beating the S&P Capital IQ consensus estimate of $1.08 billion.
For full year 2023, Constellation reported adjusted EBITDA of about $4.03 billion, up from $2.67 billion in 2022. The S&P Capital IQ consensus EBITDA estimate for Constellation in 2023 was $3.97 billion.
