Valuing Constellation Energy (CEG): Do Long-Term Power Contracts Justify the Premium?

Constellation Energy (NASDAQ:CEG) has landed two 20-year contracts with tech giants in about a week. Days after Amazon signed a deal tied to a 190 MW expansion at Calvert Cliffs, Google committed to 890 MW of new nuclear capacity on PJM, the grid that serves 67 million people. Constellation is the largest nuclear operator in the US. Since buying Calpine earlier this year, it runs 55 gigawatts of capacity across nuclear, gas, geothermal, hydro, wind and solar plants, and it sells power to about 2.5 million customer accounts, including 80% of the Fortune 100.

Whether a long contract book deserves a richer multiple depends on how fast signed deals turn into reported earnings. That timing is the catch.

Valuing Constellation Energy (CEG): Do Long-Term Power Contracts Justify the Premium? Contracts With a Long Shelf Life

The edge starts with scale. Constellation’s fleet supplies about 10% of the nation’s clean energy, and its nuclear plants (excluding the Salem and South Texas Project stakes) ran at a 93.0% capacity factor in the second quarter of 2026, meaning they delivered most of their maximum possible output. The company has also applied to extend the Ginna and Nine Mile Point Unit 1 reactors to 2049.

Customers are paying for that staying power. The quarter’s 920 MW of new agreements run 15 to 20 years with investment-grade buyers, starting between 2029 and 2032. One, a 176 MW deal with Walmart, will support a 30 MW expansion at the Dresden plant in Illinois. Another power producer is chasing the same hyperscaler contracts with a very different mix of plants. See which one.

Guidance Up, Earnings Noisy

The latest quarter shows the platform working, with some static. Adjusted (non-GAAP) operating earnings rose to $2.55 a share from $1.91 a year earlier, helped by Calpine and favorable market conditions, and management raised full-year adjusted guidance to $11.50 to $12.50 a share. GAAP earnings went the other way, falling to $1.42 from $2.67, partly because fair-value adjustments cost $0.94 a share this time versus a $0.38 gain last year. Nuclear outages also weighed, with 86 planned refueling outage days versus 41 and output of 44,160 gigawatt-hours versus 45,170.

Google adds a second leg. Constellation will invest more than $4.3 billion to upgrade 11 nuclear units across Illinois, Pennsylvania and New Jersey, with the first uprate (extra output from new turbines and controls at existing plants) due by 2028. A separate 15-year agreement covers 2,700 MW from existing plants. Meanwhile, the Crane Clean Energy Center restart now has its fuel license and a key grid-connection approval, and the company still targets 2027. The moat looks like it’s widening: more contracted megawatts, over more years.

Is Profit Growth Arriving Fast Enough?

That’s the sticking point for investors growing impatient with how slowly demand for nuclear power shows up in earnings. Expected EPS growth is 9.69% in 2027. The 920 MW of new contracts start between 2029 and 2032, and Google’s first uprate lands in 2028. Constellation’s announcement also didn’t say what Google will pay, even as the company commits more than $4.3 billion, so the return on that spending isn’t yet visible.

Those are fair worries. They argue for patience more than doubt about demand, since buyers keep signing for 15 years or longer. Looking for more stocks tied to AI’s hunger for electricity? These 10 power and grid names are worth a look.

Cheaper Than Its Own Past

At 22.04 times forward earnings, as of October 6, Constellation sits above the sector’s 16.94 but below its own five-year average of 26.53. Put simply, investors pay about $22 for each $1 of expected earnings, against about $17 for the sector and about $27 across the stock’s recent history. The premium to the sector has a logic: few companies offer firm, around-the-clock clean power under contracts reaching into the 2030s. The discount to its own history has one too. Expected EPS growth of 9.69% in 2027 is steady rather than spectacular, and the biggest projects are still years from delivering.

Weighing it all, the stock looks fair for what’s been reported rather than cheap. Uprate and restart timelines are what could tilt it toward cheap. Short interest stands at 3.70% of the float, relatively limited bearish positioning. Hedge fund interest cooled, with 73 funds holding the stock in the most recent quarter, down from 79 in the prior one.

Fair Now, Sharper Later

Is 22.04 times forward earnings fair? On the evidence, close to it. The stock costs less than its own five-year average of 26.53, and the contract book, raised guidance, and Crane restart path give the business more visibility than before. But the premium to the sector’s 16.94 already credits some of that. The setup suits patient investors who can sit through regulatory swings while projects due in 2027 and 2028 come online. A delay to the Crane restart, or Google terms that leave thin returns on more than $4.3 billion of spending, would change the picture.

While we acknowledge the potential of CEG as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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