Constellation Energy Corporation (CEG) | Investment Case

1. Company Snapshot

1.a. Company Description

Constellation Energy Corporation generates and sells electricity in the United States.The company operates through five segments: Mid-Atlantic, Midwest, New York, ERCOT, and Other Power Regions.It sells natural gas, renewable energy, and other energy-related products and services.

The company has 32,400 megawatts of generating capacity consisting of nuclear, wind, solar, natural gas, and hydroelectric assets.It serves distribution utilities; municipalities; cooperatives; and commercial, industrial, governmental, and residential customers.The company was incorporated in 2021 and is headquartered in Baltimore, Maryland.

Constellation Energy Corporation was formerly a subsidiary of Exelon Corporation.

Show Full description

1.b. Last Insights on CEG

Breaking News: Constellation Energy Corporation is set to report its fourth-quarter earnings. The company's stock has slumped since its last earnings report and dropped 32% from its October peak due to proposed regulatory caps on electricity rates in one of its key markets. A recent joint statement encourages measures that may affect wholesale producers like Constellation. Daniel Loeb's recent 13F filing also shows adjustments in his investments. Some analysts suggest buying the stock before the earnings report, with a recommendation to consider purchasing while it's below $290.

1.c. Company Highlights

1999 - Constellation Energy Corporation was formed through the merger of Baltimore Gas and Electric Company (BGE) and PEPCO Holdings, Inc.

2000 - Constellation Energy Corporation began trading on the New York Stock Exchange (NYSE) under the ticker symbol CEG.

2002 - Constellation Energy Corporation acquired the generation assets of EDF Group, expanding its presence in the Mid-Atlantic region.

2005 - Constellation Energy Corporation acquired the retail energy business of Duke Energy, expanding its retail customer base.

2008 - Constellation Energy Corporation acquired the competitive retail business of MXenergy, expanding its retail presence in the Northeast.

2011 - Constellation Energy Corporation was acquired by Exelon Corporation, creating the largest competitive energy provider in the United States.

2012 - Constellation Energy Corporation began operating as a subsidiary of Exelon Corporation, focusing on providing competitive energy solutions to commercial and industrial customers.

Last Price	294.84
Change Percentage	1.09%
Open	291.35
Previous Close	291.66
Market Cap ( Millions)	92076
Volume	3133990
Year High	412.7
Year Low	161.35
M A 50	318.7
M A 200	327.27

FCF Yield	-0.30%
Dividend Yield	0.53%
ROE	20.32%
Debt / Equity	62.98%
Net Debt / EBIDTA	82.01%
Price To Book	6.43
Price Earnings Ratio	33.69
Price To FCF	-333.61
Price To sales	3.62
EV / EBITDA	16.09

2. Constellation Energy's Q3 Earnings: A Strong Performance

Constellation Energy Corporation reported third-quarter GAAP earnings of $2.97 per share and adjusted operating earnings of $3.04 per share, slightly missing analyst estimates of $3.11. The company's commercial and generation teams delivered outstanding performance, driven by fewer nuclear outage days and efficient operations, resulting in higher generation volumes and lower O&M expenses. Revenue growth is expected to be robust, with analysts estimating a 15.4% increase in revenues for the next year. The company's nuclear fleet achieved a capacity factor of 96.8%, outperforming the industry average by around 4%. With a P/E Ratio of 40.96 and an EV/EBITDA of 24.95, the market seems to be pricing in a strong growth trajectory.

Publication Date: Nov -08

                                    📋 Highlights
                                    Earnings Growth::
                                                Adjusted operating earnings rose to $3.04/share, up $0.30 from Q3 2022, driven by efficient operations and fewer nuclear outages.
Nuclear Efficiency::
                                                Achieved a 96.8% capacity factor, 4% above industry average, equivalent to an additional reactor's annual output.
Full-Year Guidance::
                                                Narrowed to $9.05–$9.45/share, reflecting strong commercial and generation performance, with $14B liquidity post-Calpine deal.
Calpine Transaction::
                                                On track for Q4 closure (pending DOJ approval), with combined company guidance set for late February 2024.
Demand Response::
                                                Targeting 1,000 MW capacity via partnerships like Grid Beyond, equivalent to a new nuclear plant’s load capacity.

                                

Operational Highlights

The company's operational performance was a key highlight, with the nuclear fleet delivering a capacity factor of 96.8%. This was driven by fewer nuclear outage days and efficient operations, resulting in higher generation volumes and lower O&M expenses. As the company noted, this performance is equivalent to having an additional reactor's worth of power on a full-year basis. The company's data economy efforts are also gaining traction, with increased interest from sophisticated customers seeking nuclear energy solutions.

Strategic Progress

Constellation reached a landmark agreement with the state of Maryland for the continued operation of Conowingo Dam for the next 50 years. The company is also making progress on the Calpine transaction, which is on track to close in the fourth quarter, pending DOJ approval. With $14 billion of liquidity after the deal closes, the company's balance sheet is well-positioned to support its growth plans. The company's capital allocation strategy post-Calpine deal remains unchanged, focusing on maintaining a strong balance sheet and high investment-grade credit ratings.

Growth Initiatives

The company is pursuing several growth initiatives, including uprates at its existing nuclear facilities. Constellation has identified 900-1,000 megawatts of potential uprate capacity across its fleet, with LaSalle, Limerick, and Calvert Cliffs being key sites. Uprates seem to be a more cost-effective solution compared to new nuclear, with attractive economics due to lower O&M costs. The company is also focused on demand response efforts, leveraging data center flexibility and commercial agreements to manage energy usage during peak hours.

Outlook

The company's guidance for full-year stand-alone adjusted operating earnings has been narrowed to $9.05 to $9.45 per share, driven by strong commercial and generation performance. With a constructive environment in power markets, driven by data growth and limited new supply, Constellation is well-positioned to benefit from higher energy prices. The company's ROE of 20.32% and a dividend yield of 0.42% suggest a stable return profile, although the high P/E ratio indicates that the stock's price may be sensitive to earnings surprises.

3. NewsRoom

The world's largest energy lender has a new head: Here's how it could shape U.S. policy

Feb -22

Source: cnbc.com

Constellation Energy Corporation (CEG) Exceeds Market Returns: Some Facts to Consider

Feb -20

Source: zacks.com

Constellation Energy: From Utility To AI Infrastructure Backbone

Feb -20

Source: seekingalpha.com

Value or Growth: 2 Ways to Invest in the Energy Transition

Feb -18

Source: marketbeat.com

Daniel Loeb's Strategic Moves: Flutter Entertainment PLC Exits with -3.17% Impact

Feb -17

Source: gurufocus.com

Beyond Tech: The Hidden Winners of the AI Energy Boom

Feb -17

Source: prnewswire.com

Should You Buy Constellation Energy Stock Before Feb. 20?

Feb -17

Source: fool.com

Should You Buy Constellation Energy Stock While It's Below $290?

Feb -17

Source: fool.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (5.10%)

6. Segments

Generation

Expected Growth: 5.1%

As the global energy demand increases, Constellation's Generation segment is expected to grow at a rate consistent with the global revenue growth hypothesis, driven by increasing electricity demand and a shift towards cleaner energy sources.

7. Detailed Products

Electricity

Constellation Energy Corporation provides electricity to residential, commercial, and industrial customers through its retail electricity business.

Natural Gas

Constellation Energy Corporation offers natural gas supply services to customers in deregulated markets, providing a reliable and affordable energy source.

Renewable Energy

Constellation Energy Corporation offers renewable energy solutions, including solar, wind, and biomass energy, to help customers reduce their carbon footprint.

Energy Efficiency

Constellation Energy Corporation provides energy efficiency solutions, including LED lighting and HVAC upgrades, to help customers reduce their energy consumption.

Demand Response

Constellation Energy Corporation offers demand response programs, which pay customers to reduce their energy usage during peak periods.

Energy Management

Constellation Energy Corporation provides energy management services, including energy procurement, risk management, and sustainability consulting.

8. Constellation Energy Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Constellation Energy Corporation operates in a highly regulated industry, which limits the threat of substitutes. However, the increasing adoption of renewable energy sources and energy storage technologies poses a moderate threat to the company's traditional business model.

Bargaining Power Of Customers

Constellation Energy Corporation's customers are largely residential and commercial entities, which have limited bargaining power due to the company's diversified customer base and lack of concentration.

Bargaining Power Of Suppliers

Constellation Energy Corporation relies on a diverse range of suppliers for fuel, equipment, and services. While suppliers have some bargaining power, the company's scale and diversification mitigate this risk.

Threat Of New Entrants

The energy industry is highly regulated, and significant barriers to entry exist, including high capital requirements and complex regulatory frameworks, making it difficult for new entrants to disrupt the market.

Intensity Of Rivalry

The energy industry is highly competitive, with multiple players vying for market share. Constellation Energy Corporation faces intense competition from established players and new entrants, which can lead to pricing pressure and market share erosion.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	45.88%
Debt Cost	7.17%
Equity Weight	54.12%
Equity Cost	7.71%
WACC	7.46%
Leverage	84.77%

11. Quality Control: Constellation Energy Corporation passed 3 out of 9 key points

Strong Liquidity

Low Deb

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Southern

A-Score: 6.7/10

Value: 5.1

Growth: 4.8

Quality: 5.1

Yield: 8.0

Momentum: 7.0

Volatility: 10.0

1-Year Total Return ->

American Electric Power

A-Score: 6.6/10

Value: 4.4

Growth: 4.6

Quality: 4.7

Yield: 7.0

Momentum: 9.0

Volatility: 10.0

1-Year Total Return ->

ConEd

A-Score: 6.6/10

Value: 5.3

Growth: 4.2

Quality: 4.9

Yield: 8.0

Momentum: 7.0

Volatility: 10.0

1-Year Total Return ->

Edison

A-Score: 6.4/10

Value: 8.4

Growth: 5.3

Quality: 6.4

Yield: 9.0

Momentum: 1.5

Volatility: 7.7

1-Year Total Return ->

PSEG

A-Score: 5.2/10

Value: 3.1

Growth: 3.8

Quality: 5.1

Yield: 6.0

Momentum: 3.5

Volatility: 10.0

1-Year Total Return ->

Constellation Energy

A-Score: 4.7/10

Value: 3.2

Growth: 4.7

Quality: 6.6

Yield: 1.0

Momentum: 9.0

Volatility: 3.7

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

33.93%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

7.46%

Constellation Energy Corporation - US21037T1097

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on CEG

1.c. Company Highlights

Strong Momentum

Better Quality

Lower Yield

Earnings Beats

Revenues Miss

More Volatile

Earnings Miss

Revenues Beats

Expensive

2. Constellation Energy's Q3 Earnings: A Strong Performance

Operational Highlights

Strategic Progress

Growth Initiatives

Outlook

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (5.10%)

6. Segments

Generation

Expected Growth: 5.1%

7. Detailed Products

Electricity

Natural Gas

Renewable Energy

Energy Efficiency

Demand Response

Energy Management

8. Constellation Energy Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Constellation Energy Corporation passed 3 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

294.84$

Current Price

294.84$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA