On Monday, Guggenheim Securities adjusted its outlook on Constellation Energy (NASDAQ:CEG), increasing the price target to $378 from the previous $328, while maintaining a Buy rating on the company's stock. Currently trading at $283.95, CEG has delivered an impressive 172% return over the past year.
According to InvestingPro analysis, the stock appears overvalued at current levels, though analyst targets range from $226 to $375. The revision follows Constellation Energy's unexpected acquisition of CPN, which analysts believe enhances the company's strategic position and financial metrics.
Shahriar Pourreza, an analyst at Guggenheim, highlighted that the acquisition of CPN represents a significant move for Constellation Energy, offering long-term contracting synergies and establishing the company as a comprehensive solutions provider for hyperscalers.
With a market capitalization of $95.45 billion and a solid financial health score rated as "GOOD" by InvestingPro, the company appears well-positioned for this strategic move. Pourreza noted that the transaction not only appears financially advantageous but also reinforces the scarcity value of gas assets in the context of decarbonization and load growth.
The analyst's commentary underscored the similarities between the investment thesis for Constellation Energy and the previous Best Idea designation for VST in 2024. According to Pourreza, Constellation Energy's gas fleet is well-positioned for resource adequacy (RA) and energy margin capture over the coming decades, presenting an attractive investment opportunity at a multiple below that of VST's takeout.
In response to investor concerns regarding the timing of colocation deals for the first half of 2025, the deal is seen as providing relief and setting the stage for additional catalysts through the end of 2025. The acquisition also addresses worries about the scarcity value of nuclear power in light of recent gas transactions, which are now considered resolved.
Guggenheim's revised price target of $378 implies a free cash flow yield of approximately 4% or a 16 times EBITDA multiple. The company currently trades at an EV/EBITDA of 16.2x, with last twelve months EBITDA of $6 billion. For deeper insights into CEG's valuation metrics and comprehensive analysis, investors can access the detailed Pro Research Report available on InvestingPro, which covers over 1,400 US stocks.
The firm has incorporated a full model for CPN within its valuation of Constellation Energy and provided proforma numbers for illustrative purposes. However, Guggenheim acknowledges that these figures could change materially as more details emerge leading up to the deal's closure. Following the acquisition announcement, Guggenheim analysts had the opportunity to engage with Constellation Energy's C-suite.
In other recent news, Constellation Energy has seen a flurry of activity from various analyst firms following its announcement of a $29 billion acquisition of Calpine. This move merges the largest nuclear fleet in the U.S. with a substantial natural gas fleet, creating a combined power generation capacity of over 60 gigawatts.
JPMorgan has increased the stock price target for Constellation Energy from $348.00 to $358.00, while maintaining an Overweight rating. Mizuho (NYSE:MFG) Securities raised its price target from $235.00 to $307.00, maintaining a Neutral rating, and BofA Securities raised its target to $308.
The acquisition is expected to generate over $2 billion in free cash flow annually and lead to more than 20% earnings per share accretion, considered exceptional by industry standards. Constellation Energy also reported strong third-quarter earnings, surpassing expectations with GAAP earnings of $3.82 per share and adjusted operating earnings of $2.74 per share.
In addition, the company has secured significant contracts with the U.S. Government, estimated to be worth around $840 million, to supply over one million megawatt-hours annually to more than 13 government agencies. This agreement solidifies Constellation Energy's revenue stream for the next decade.
On the analyst front, BMO Capital Markets maintained an Outperform rating, BofA Securities upgraded the stock from Neutral to Buy, Jefferies reaffirmed its Hold rating, and KeyBanc maintained their Overweight rating. These are among the recent developments for Constellation Energy.
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