2 weeks Ago
Once an obscure name, Talen Energy Corporation has taken Wall Street by surprise to become one of the hottest stocks in the utility space this year, as its shares have more than doubled in value. Talen's surge comes on the back of its deal to sell a data center campus to Amazon Web Services and supply the facility with nuclear power from the Susquehanna station northwest of Allentown, Pennsylvania. The deal is viewed as a trailblazing agreement for the power industry, and Wall Street has taken notice.
A year ago, Talen was not covered by any Wall Street analysts, according to FactSet data. Over the course of the past two months, Barclays, Guggenheim, Jefferies and UBS have initiated coverage with the equivalent of buy ratings. UBS was the latest firm to start coverage this week, setting a $197 price target that implies upside of 15% from Wednesday's close of $171.
02. Barclays is even more bullish, raising its target this week by $39 to $207 per share, which would result in a 21% gain. Talen stock has already surged 167% this year and 212% over the past 12 months, with its market cap now coming in at nearly $9 billion.
Guggenheim analyst Shahriar Pourreza described Talen as a "unicorn" in a note published earlier this month with the Susquehanna plant acting as the company's "crown jewel." The agreement with AWS serves as "potential beachhead" for similar deals in the future, Pourreza said. Talen is sitting in a sweet spot right now, the analysts said.
TLN YTD line Talen Energy Corp ytd It is the only independent power company to have announced a nuclear deal with a major data center developer, the most concrete demonstration yet that tech companies are trying to secure reactors to power artificial intelligence and the cloud. And Talen's assets are located almost entirely in the PJM grid, a predominantly mid-Atlantic region where power prices are expected to explode as demand outstrips supply due in part to growing data center load. "TLN represents a way for investors to gain more leverage to nuclear contracts with tech customers and PJM's attractive power fundamentals," UBS analyst William Appicelli told clients in a Wednesday note.
Talen has contracted up to 960 megawatts to AWS from the 2,200 megawatts at the two-unit Susquehanna nuclear plant. This means there is potential for the company to contract all or some of the second reactor at some point in the future, according to Appicelli. Data center developers are expected to spend $250 billion annually on data centers, Barclays analyst Nicholas Campanella said in a note this week.
This gives Talen a big opportunity to use the intellectual property it gains from the AWS deal to replicate similar agreements across its network of power assets, including natural gas plants, Campanella said. Talen will start receiving revenues from AWS in the second half of 2025. Barclays forecasts the deal will contribute $41 million in earnings before interest, taxes, depreciation and amortization next year and then increase every subsequent year to total $148 million in 2028.
On Sept. 5, Talen announced a share repurchase program of $1.25 billion, which builds on the $931 million in shares the company has already bought back.
The company, however, does face risks. Its nuclear agreement with AWS has stirred controversy among traditional utilities, with Exelon and American Electric Power arguing that Talen is trying to get around grid interconnection fees. Exelon and AEP have challenged the agreement before the Federal Energy Regulatory Commission.
"Opposition to the AWS behind the meter nuclear contract represents a risk but not likely a significant one," Appicelli wrote. "We expect contract approval from the Federal Energy Regulatory Commission by early November and the next PJM capacity auction results Dec. 17th as catalysts," he said.
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