Constellation Energy stock surges 25% on blockbuster acquisition

Constellation acquired Calpine in one of the largest energy deals of all time.

constellation energy (NASDAQ:CEG) stock rose about 25% on Friday after the energy company announced it was acquiring Calpine Corp., a leading natural gas energy company.

The Baltimore-based company is the nation’s largest clean energy provider, with approximately 90% of its energy being carbon-free from hydro, wind, solar and nuclear power.

With this acquisition, Calpine joins one of the largest producers of electricity from natural gas and geothermal sources in the United States. The combination creates what is believed to be the largest provider of clean and low-emissions energy in the United States.

The $16.4 billion deal is one of the largest energy sector acquisitions ever. This includes $4.5 billion in cash, 50 million shares of Constellation stock, and $12.7 billion in Calpine debt. Factoring in the value of the cash and tax properties Calpine will generate before the deadline, that value increases to $26.6 billion.

“Combining Constellation’s unrivaled expertise in zero-emission nuclear energy with Calpine’s industry-leading low-carbon natural gas and geothermal power facilities will enable us to offer the broadest range of energy products and services in: industry. “Both companies have led America’s transition to cleaner, more reliable and safer energy, and these shared values ​​will guide us as we pursue investments in new and existing clean technologies to meet growing demand.” said Joe Dominguez, Constellation President and CEO. , said.

20% increase in revenue

Constellation has become a massive company since being spun off from Exelon in 2022. The stock has returned 54%, 37%, and 93% over the past three years, respectively. The three-year average annual return was 94%, the best performance during that period.

On Friday, the stock surged another 25% to about $306 per share. As of Jan. 10, it was up 35% year-to-date and had returned 163% over the past 12 months.

The acquisition is expected to be immediately accretive to earnings upon completion within 12 months. The company expects to grow adjusted earnings per share (EPS) by more than 20% in 2026 and expects to see at least $2 per share of EPS growth over the next few years.

It is also expected to generate more than $2 billion in free cash flow annually, generating capital and scale to reinvest in the business.

Additionally, Constellation’s revenue outlook is expected to grow at a double-digit rate by the end of the decade, driven by this strategic acquisition.

“Together, we can accelerate investments in everything from zero-emission nuclear to battery storage that will power our economy in a way that puts people and the environment first,” said Andrew Novotny, president and CEO of Calpine. “You’ll be in a better position,” he said.

nuclear leader

Most of Constellation’s energy comes from nuclear power. Last week, Constellation signed a $1 billion contract with the U.S. government to supply nuclear energy to 13 federal agencies over the next 10 years, as Constellation is the largest operator of nuclear power plants in the United States.

Market analysts were generally optimistic about the deal.

“We see the generation fleet as complementary and our generation holdings as credit-advantaging in the short to medium term,” said Aneesh Prabhu, managing director, power and LNG infrastructure, S&P Global Ratings. He said. “The company will be the largest independent power producer (IPP) in North America and will have more than 60 GW of generating capacity. “Overall, this transaction creates the largest offshore generator.”

Additionally, analysts at Bank of America and UBS see the deal as an immediate and meaningful boost to revenue.

But Enverus Intelligence Research analyst Scott Wilmot said this raises Constellation’s risk profile.

“The Calpine portfolio, which is primarily comprised of gas, carries significantly higher commodity risk,” Wilmot said, according to Investors Business Daily. “While the acquisition price appears fair, changes in CEG’s risk profile could increase the risk premium at which it is priced, potentially putting downward pressure on the stock price.”

Constellation’s median price target is $290 per share, about 5% down from its current price. Additionally, the P/E ratio is 26.