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UTILITIES / UTILITIES - INDEPENDENT POWER PRODUCERS
CEG / NYSE
Source: Company data, Bloomberg, Alpha Vantage API
| Quarter | EPS | Quarter | EPS |
|---|---|---|---|
| Q4 25 | $2.3 | Q4 24 | $2.44 |
| Q3 25 | $2.97 | Q3 24 | $2.74 |
| Q2 25 | $1.91 | Q2 24 | $1.68 |
| Q1 25 | $0.38 | Q1 24 | $1.82 |
Nuclear Production Tax Credits 45U
Zero-Emission Nuclear Production Tax Credits 45U (PTC) are driving costs down by putting a partial baseline into the electricity sale prices to the 3rd parties. Therefore, new investments became less risky for the company due to a less obscure and more predictable future. Previously, similar kinds of credits existed for other clean energy resources like solar and wind under different names (e.g., 45X for solar). But 45U was created in August 2022 under the Inflation Reduction Act, and CEG became eligible for it in 2024. And it will have the opportunity to use them until the end of 2032.
In case prices drop below $25/mWh, the company becomes eligible to get the full amount of the subsidy, $15/mWh. And this subsidy can go down until $3/mWh in case the price rises and won't be needed after a ceertain threshold. Therefore, we can shortly say that there is a price floor established at the $40 line. This subsidy is a direct reason for the spread of nuclear energy usage, especially since natural gas, solar, and wind usually offer cheaper electricity.
Markets price CEG not according to its subsidy opportunity but due to its ongoing operations and partnerships. We think that this subsidy will enable CEG to make new investments, especially focusing on data centers, in the near future, with less risk than before. Markets can't predict what those investments will be and when will they occur, but there is a strong chance that surprising developments may happen.
Record high capacity factor
In 2025Q3, CEG reached to a 96.8% capacity factors in the nuclear facilities that it holds a majority stake. The national average is around 92%, and the closest competitors are around 92-94% (PSEG Power and Vistra Corp). The global average varies between 82-89%. This number represents the ratio of potential output created. And due to frequent maintenance and refueling processes, it's not easy to reach a level close to 100%. But CEG does.
A higher capacity factor means that CEG can maintain a lower cost per unit production, compared to its competitors. Therefore, this low-cost advantage will increase profitability from sales by reducing COGS with the same revenue, or it can give a margin of discount in case competition increases in the future.
This level of capacity factors is newly reached, and it's not certain to maintain the same level in the future. But we predict that CEG will sustain these levels, which'll give it a comparative advantage in low-cost advantages. The market will correct itself once stability is ensured.
20 Year Meta and Microsoft Agreements
CEG entered into agreements with Meta in June 2025 and Microsoft in September 2024. Both deals are 20-year-long power purchase agreements. Both companies are doing this deal to feed energy into their data centers. The agreement with Meta will occur through energy production in the Clinton Clean Energy Center, which was slated for closure. It was running on credits issued by the state of Illinois. But, starting from 2027, Meta guarantees that the plant will run at least until 2047. Additionally, on top of the already existing 1091mw capacity, 30mw of extra energy output will be created. The agreement with Microsoft includes restoration of the Crane Clean Energy Center, which was closed in 2019. The plant is expected to be ready for production in 2027, with a capacity of 835mw.
Both deals will incorporate a premium in electricity prices. While the position of Meta deal is unclear, analysts expect a price range of $110-115 per mWh for Microsoft. That being said, any possible further deal will also be subjected to this premium pricing, adding more to the profitability compared to alternate usage of electricty produced form nuclear plants. The reason CEG is able to charge high prices is that the usage of clean energy matters to data center-operating companies, and no other energy source can give a reliable and stable, constant flow of electricity to feed the centers non-stop. And, Microsoft's deal secured a loan of $1 billion for CEG to re-run the plant.
Although the market is priced after these two agreements, the stock price even reached the $400 level in 2025, there is a great chance of making new deals with the same or other companies that are seeking to feed new or existing data centers with clean and emission-free energy. It's not possible to now whether or when new agreements will be made, but given the current position of CEG and data centers, most likely we'll see new power purchase agreements.
Constellation Energy Corporation is one of the largest private sector power producers in the world and one of the top producers of clean electricity in the United States. Based in Baltimore Maryland they formed from Exelon in early 2022 and has become one of the top competitors in power production with regard to nuclear energy, matching the increasing demand for clean electricity production for tech companies and data centres.
The core of their business focuses on nuclear energy, currently being the largest producer in the United States. They own 21 reactors across 12 facilities across the country too. Before their acquisition of Calpine Corporation in January 2026, Constellation Energy Corporation owned roughly 22 gigawatts of nuclear energy generation capacity, producing 183 terawatt-hours of emission free electricity in 2025 alone. Nuclear energy accounted for approximately 65% of their total electrical supply that year, and they operate at an industry capacity factor of around 95% having run their plants to produce electricity all year round. Their reliability amongst competitors positions them at a competitive advantage, especially due to the fact that nuclear energy is resistant to extreme changes in weather that could affect their capacity compared to other producers.
Their revenue is generated from two connected streams. On the wholesale side, the company sells their power into increasingly competitive electricity markets, mainly the PJM interconnection in the Mid-Atlantic and Midwest, managing commodity price through their carefully designed multi-year hedging programme. On the retail side, they operate a vast electricity and natural gas supply business to the country, serving approximately 2.5 million customers and three quarters of the fortune 100. These streams allow Constellation Energy to offer their long-duration purchasing power agreements (PPAs) to large commercial and industrial customers. These agreements have become increasingly central to their growth strategy as hyperscalers seek guaranteed supplies of clean, on-demand electricity to power their data centres.
The Nuclear Production Tax Credit (PTC) was introduced under the Inflation Reduction Act of 2022 and was made permanent under the One Big Beautiful Bill act of 2025. It provides a critical foundation for the nuclear energy production arm of Constellation Energy. The PTC works as subsidy to top up revenue when wholesale electricity prices fall below the threshold (for 2025, it was set at $44.75/MW-hr). In 2025, they received approximately $1.7 billion in nuclear PTCs, down from $2.1 in 2024 due to the wholesale electricity price rise, though the PTC mechanism also works inversely, allowing Constellation Energy to earn more revenue. Overall, this allows company earnings to be significantly more predictable compared to other power generating companies in the market.
The retail business they operate serves millions of customers including large corporations in the United States, generating recurring revenue from energy supply contracts and also includes additional services such as renewable energy certificates and carbon-free products. Constellation Energy is the only company able to produce 24/6 demand-matched carbon-free electricity on a large and desirable scale, resistant to relying on intermittent wind and solar produced energy.
The economic moat of Constellation Energy is unique with regard to their competitive advantage. This is because no new large-scale nuclear power plants will be commissioned in the United States for the next decade. This means that existing nuclear power facilities are positioned as the only proven, scalable source of carbon-free power on the grid, especially due to the high barriers to entry.
The company’s scale advantage also creates additional moat. Their ability to offer multi-decade PPAs to hyperscalers and 24/7 reliability of nuclear energy is a product that no other competitor can replicate at present. This has resulted in the company securing 20-year agreements with Microsoft and Meta.
Analysts currently describe the US power generation industry as crucial, caused by the rapid increase of three long term demand trends. The buildout of artificial intelligence data centre infrastructure, electrification (and of transport) and the onshoring of advanced manufacturing. According to forecasts from major consultancy firms such as BCG and McKinsey, demand for electricity from large data centres could alone add between 73 to 140 gigawatts of additional electricity demand to the US grid over the next decade. Hyperscalers in technology such as Amazon, Google, Microsoft and Meta have committed to over $200 billion of capital expenditure (CapEx) on data centre infrastructure in 2025 and 2026 (so far) with power being the bottleneck of their expansion. Bearing this in mind, the market for carbon-free electricity has come out to be an undersupplied part of the electricity market. Large technology companies have stated net-zero and carbon-matching agreements to prevent them from using fossil fuels. The renewable energy from solar and wind power is largely available, however it cannot provide constant 24/7 power that these new data centers require. Nuclear power on the other hand is the only proven source that satisfies this allowing Constellation Energy to take a lead on these big contracts at premium prices from the world's largest buyers of electricity.
Within the US Independent power producer (IPP) firms, Constellation Energy’s competitor Vistra Energy operates nuclear power production alongside retail and gas production. Vistra Energy has attracted attention from investors given the current theme of supplying power to match AI-driven demand, with some analysts arguing that they offer better earnings growth and better growth prospects. NextEra Energy is also one of the world’s largest renewable energy producers and competes with Constellation Energy for contracts, though they offer mainly wind and solar oriented power making comparison somewhat difficult. Other competitors include Talen Energy and NRG Energy, and regulated firms such as Duke Energy and Southern Company are held back by regulation to be able to compete at the forefront of the market. Following the 2026 Calpine Corporation acquisition, Constellation Energy have also entered geothermal energy and larger scale natural gas markets, reaching ERCOT, Texas. The acquired Calpine Corporation controls 55 gigawatts of generating capacity, more than its competitors and produces for 10% of the US’ total clean energy, placing Constellation Energy in a competitive position, again, that other smaller and emerging companies are struggling to compete with.
2026 Business and Earnings Outlook
Markets are waiting to see how the Calpine Corporation acquisition will lead to earnings throughout the remainder of 2026. If there is a stronger show for earnings through new synergies, increased price of electricity or contracts, investors will expect higher profits driving stock price and reducing uncertainty.
Completion of new DOJ and FERC mandate
Completing the desired asset sales removes the uncertainty related to the Calpine Corporation acquisition. Reduced regulatory issues through the mandate means management can focus on growth for the business, improving investor confidence and any perceived risk.
Commission of the Crane Clean Energy Centre
Commission of this plant means that new electricity generation capacity can be added to the long-term contract with Microsoft. Provides stable and predictable revenue over the course of upcoming years. This will increase future profit expectations boosting earnings growth and valuation as well.
Results of the PJM Base Residual Auction (BRA)
The prices of capacity in PJM have been rising due to increased demand for electricity. As Constellation Energy owns majority of capacity in the market, higher auction prices will directly cause an increase in revenue. Strong results in this auction means tightened supply and steady demand to accompany it leading to higher future earnings and also valuation increase.
900 MW potential capacity increase across existing nuclear power producers
Increased output from current plants stands as a low cost method to increase generation of power. It will allow Constellation to produce and sell more electricity without constructing new facilities, and will lead to increased revenue and upside potential.
Our DCF model values Constellation Energy Corp at $397.95 per share, representing a 42.4% upside to the current market price of $279.46.
Discounted cash flow contributions · $bn
| Assumption | Value |
|---|---|
| Capex as % of Revenue | 10.2% |
| D&A as % of Revenue | 12.0% |
| NWC Change as % of Revenue Δ | 2.0% |
| Cash Tax Rate | 19.9% |
| Perpetual Growth Rate | 2.50% |
| Terminal Value | $177.7B |
| % of Enterprise Value | 82.2% |
Terminal value assumes 2.50% perpetual growth, in line with long-term GDP expectations.
Impact of changes in WACC and terminal growth rate on valuation (base case: $397.95)
| WACC ↓ / Growth → | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 5.65% | $440.77 | $494.81 | $566.01 | $664.05 | $807.66 |
| 6.15% | $391.05 | $432.68 | $485.71 | $555.57 | $651.78 |
| 6.65% | $350.99 | $383.92 | $424.78 | $476.82 | $545.38 |
| 7.15% | $318.04 | $344.64 | $376.95 | $417.05 | $468.13 |
| 7.65% | $290.45 | $312.32 | $338.42 | $370.14 | $409.50 |
Blue cell indicates base case valuation.Green = upside scenarios,Red = downside scenarios.
The DCF model employs a Free Cash Flow to the Firm (FCFF) approach, valuing Constellation Energy Corp based on cash flows available to all capital providers. The methodology includes:
Target: $453.47 per share (+62.3% vs current $279.46)
| Metric | Bull Case |
|---|---|
| Intrinsic Value/Share | $453.47 |
| Enterprise Value | $177.75B |
| WACC | 6.34% |
Assumptions: Higher revenue growth, margin expansion, lower discount rate.
Target: $313.31 per share (12.1% vs current $279.46)
| Metric | Bear Case |
|---|---|
| Intrinsic Value/Share | $313.31 |
| Enterprise Value | $124.43B |
| WACC | 6.96% |
Assumptions: Lower growth, margin pressure, higher discount rate.
Nuclear PTC discontinues in 2032.
If the government decides not to continue Nuclear Production Tax Credits, which are set to expire in 2032, but are expected to be extended to a later time, then if the electricity prices go down, the profitability will be gone. Also, even if production stays at profitable levels, nuclear will be less competitive against natural gas and renewables, which will make it harder to sell the produced electricity.
AI and data centers hype diminishes
Data center constructions may face a slowdown in the coming years, due to a change in AI trends or technological advancements in the efficiency of electricity usage. In this case, the need for new energy sources would also diminish, and there'd be no need for new nuclear power plants. CEG's outlook partially depends on future investments in data centers by third-party technology firms and supplying a constant flow of electricity on a massive scale. This may cause a reduction in expansion strategies, if not a shrinkage in ongoing business operations.
Currently, Constellation Energy’s strategy is not to deploy the usage of artificial intelligence internally, but to position itself as the main power infrastructure provider for the growing AI economy. It uses data analytics for its core operations but retains its core as the supplier of electricity that AI depends on, as the continue to strive as the preferred power provider for hyperscalers in technology that are building data centres. The key initiative as of now is the Crane Clean Energy Centre highlighted in the catalysts and other projects such as the Microsoft contract.
Constellation Energy occupies a unique position in the US energy market as a difficult to replicate player. As the main operator of the largest nuclear facilities in the nation, following their acquisition of the Calpine Corporation (largest private-sector power producer), its capable of and is delivering 24/7 carbon-free electricity at a huge scale. This makes the firm not just a utility, but a foundational layer with regard to energy security, decarbonization and infrastructure development for artificial intelligence. Our thesis highlights this and deems it credible, supported by the nuclear PTC providing earnings downside protection and long term PPAs with Microsoft, Meta and CyrusOne, all offering clear visibility to strong earnings. The Calpine Corporation acquisition further expands the scale of their projects alongside strategic diversification as mentioned throughout the report.
However, these strengths do not justify a 'buy' recommendation at present. Near-term uncertainties and reliance on the likelyhood of ambitious project outcomes introduces the risks that may not be 'priced in.' The most significant example of this is, despite its praise, the Crane Clean Energy Centre interconnection delay, where PJM indicated that the plant may not connect to the grid until 2031, creating a time gap in potential earnings. As well as this, the integration of Calpine Corporation on the grid presents execution risk as mentioned, likelyhood of execution from management with respect to combining large complex operations at the same time as refinancing and ever-changing new product development. Any slips through the crack in this scenario would cause serious changes in the outcome.
Finally, valuation remains a constraint on our recommendation. Currently, the stock reflects long-term expectations and leaves limited room for any error especially given high volatility in the world of commodities markets. As a result, our recommendation results in a hold with a learn towards buy (moderate overall) taking a careful approach to risks that may arise.
This report has been prepared by St. George Capital for educational purposes only. It does not constitute investment advice or a solicitation to buy or sell securities. St. George Capital and its members may hold positions in the securities discussed. Past performance does not guarantee future results. Investors should conduct their own due diligence and consult with qualified financial advisors before making investment decisions.