Here's How Shares of Utility Company Constellation Energy Defied the Odds to Soar 91% Last Year

Utility stocks certainly have their place in some investors' portfolios. But let's face it -- they're not high-growth tickers. So how did shares of Constellation Energy (NASDAQ: CEG) manage to climb 91% (according to numbers from S&P Global Market Intelligence) in calendar 2024?

In retrospect, the reason isn't really all that surprising.

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Constellation Energy's in the right place at the right time

Although this utility giant's stock made respectable forward progress all year long, the bulk of the big gain materialized in two brilliant bullish bursts.

The first of these bursts came in February, in response to guidance for the year ahead. Fueled by strong pricing guarantees for electricity generated by its fleet of nuclear reactors, the company offered 2024 earnings guidance that was measurably ahead of expectations. More to the point, the outlook suggested Constellation would be able to keep the impact of inflation in check for the foreseeable future, supporting its annual earnings growth target of 10%.

The other bullish surge took shape in September, after announcing it would be restarting one of the dormant nuclear reactors at Harrisburg, Pennsylvania's Three Mile Island in order to meet the power needs of one of Microsoft's many data centers. Although this restart is still years away, the development could mark the beginning of a more sweeping movement that plays into Constellation's strength as a nuclear power producer. It's the nation's leading producer of nuclear power, in fact, accounting for more than 80% of its total annual energy output. Its sheer size helps it remain cost-effective.

And this is no small detail. While the growing availability of renewable energy is certainly helping accelerate the decline in the use of fossil fuels, the need for new production capacity is outpacing the growth of renewables. To this end, the U.S. Department of Energy is planning for a tripling of the nation's current nuclear power output to 200 gigawatts by 2050.

Recognizing this particular utility outfit is better positioned than any other to capitalize on this nuclear tailwind, investors have gladly been scooping up stakes in Constellation over the course of the past year...with or without news-based catalysts.

The rally hasn't stopped in the meantime, either. Just last week Constellation announced its intent to acquire natural gas and geothermal power name Calpine, rounding out its efforts to become a zero-emissions utility outfit by 2040, and sending its stock higher as a result. It's noteworthy simply because shares of suitors tend to tumble when such deals are made due to their typically high cost.

Right stock, wrong time

Investors' gut feelings are essentially right. As it stands right now, Constellation Energy is the name to beat in the utility business.

Buyers have arguably gotten a little ahead of themselves, however. Last year's 91% romp in addition to this year's 36% gain so far has carried shares up to roughly $305 apiece, versus analysts' consensus price target of only $276.29. One might want to wait for a healthy pullback from the stock before stepping into a stake in this leading name of the utility sector.

Should you invest $1,000 in Constellation Energy right now?

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Constellation Energy and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.