Constellation Energy shares have been on a tear lately, and they may just be getting started, according to Morgan Stanley. Analyst Stephen Byrd on Wednesday initiated coverage of Constellation Energy with an overweight rating issued a $63 price target that implies 23% upside. Constellation Energy's stock price surged 22% thus far this year. Investors like the firm's stable cash flows, as natural gas and coal prices rise, Morgan Stanley said. "Our thesis is simple: Despite the recent rally in the stock price, the current valuation (at < 8.5x EV/'23 EBITDA on consensus estimates) does not reflect the company's strong, low risk cash flow profile," Byrd wrote. The analyst also believes the stock will benefit from federal support of nuclear power plants, which is enjoying bipartisan support following the Russia-Ukraine conflict. "While our Overweight rating is a consensus call, we believe our approach differs in that we use a discounted cash flow analysis to value CEG and arrive at an implied EV/'23 EBITDA multiple of > 9x,a level above what much of the Street tends to use when valuing the stock," Byrd wrote. Morgan Stanley isn't the only firm that's bullish on Constellation Energy. Goldman Sachs also initiated coverage of the energy company earlier this week. —CNBC's Michael Bloom contributed to this report.
An oil and gas drilling platform stands offshore as waves churned from Tropical Storm Karen come ashore in Dauphin Island, Alabama, October 5, 2013.