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Investing.com -- Seaport Research Partners upgraded Constellation Energy Group to Buy from Neutral in a note to clients on Wednesday, citing rising cash flows among thermal independent power producers (IPPs) and the company’s pending acquisition of Calpine.
Seaport said that cash flows of thermal IPPs are on the rise “thanks to higher power and capacity prices, lower interest rates and no cash taxes.”
The firm expects more DC power deal announcements, additional M&A and positive earnings revisions for thermal IPPs before the end of 2025.
“The Calpine merger should close within the next 30 days,” Seaport said, adding that “given sharply higher EBITDA and FCF estimates for CEG+Calpine and CEG’s relative underperformance vs. IPP peers over the last 12 months, we would want to be long CEG into its post-merger earnings update.”
The analysts set a $407 price target for the stock.
Seaport noted that “the Calpine merger won’t qualify for bonus depreciation under the OBBB,” but that “maintenance and growth capex (nuclear restart plus uprate) of both companies together with nuclear fuel purchases should be enough to largely shield CEG’s growing EBITDA from cash taxes.”
On a pro forma basis, Seaport estimates that “CEG trades at 10.3x 2027 EV/EBITDA and a 7.7% 2027 FCF yield.”
The firm said those multiples remain rich compared to those of VST, CEG’s closest peer, “but for a good reason given CEG’s size and its nuclear/gas earnings mix.”
Seaport concluded that it is “watching regulatory reforms of CA’s resource adequacy market,” but its model already “reflects more moderate RA prices beyond 2027/2028.”