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Morgan Stanley analyst David Arcaro maintains Constellation Energy (NASDAQ:CEG) with a Overweight and raises the price target from $364 to $369.
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Following the Federal Reserve's 25 basis point rate increase in September 2026, alternative energy companies face headwinds from higher financing costs. However, three companies—Montauk Renewables, Constellation Energy, and TXNM Energy—demonstrate strong fundamentals with solid interest coverage ratios and significant earnings growth projected for 2026, positioning them to weather the higher rate environment.
Constellation Energy and Vistra are both capitalizing on AI-driven electricity demand, with stocks up 137% and 330% respectively over three years. Constellation focuses on nuclear power (22 GW capacity), while Vistra is more diversified with natural gas (62% of capacity) and smaller nuclear operations (15%). The analyst recommends Vistra as the better buy due to its lower valuation (9x 2026 EBITDA vs. Constellation's 21x P/E), greater diversification, and stronger exposure to natural gas, which powers most U.S. data centers.
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