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Constellation Energy (CEG) has gone from a spun-out “orphan” to one of the market’s favorite clean power stories in just a few years. The company controls the largest nuclear fleet in the U.S., sells into virtually every major power market, and is positioning itself as the go-to provider of 24/7 carbon-free electricity for AI data centers, hyperscalers, and government customers. 2024 10-K 2025 proxy

Since the 2022 separation from Exelon, management has leaned hard into this narrative. They’ve highlighted the Inflation Reduction Act’s nuclear production tax credit (45U), aggressive coal retirements, and long-term PPAs with Microsoft and Meta as the building blocks for multi-decade, high-quality cash flows. 2024 10-K Utility Dive (June 2025) The next big chapter is the proposed acquisition of Calpine, which would add gas and geothermal capacity, deepen exposure to fast-growing markets like Texas and California, and create the largest U.S. generator by capacity. Utility Dive (Jan 2025)

The stock has responded accordingly. Over the last 12 months, CEG is up roughly 57%, now trading around $360 per share with a market cap north of $112 billion and a P/E multiple near 41x. FMP (2025) That is growth-equity territory, not what most investors expect from a “utility.”

From our perspective at DeepValue, this sets up a classic tension: a genuinely advantaged asset base with powerful secular tailwinds, but priced as if a lot of things will go right. We see Constellation as a high-quality, high-expectation compounder where entry price, cash-flow quality, and policy stability matter enormously.

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In this article, we’ll walk through the bullish and bearish angles, how the Calpine deal reshapes the story, and what we’d want to see before upgrading Constellation to a clear “buy” on a value-investing framework.

Constellation’s Investment Case: Scarce Nuclear Scale Meets AI Power Demand

At its core, Constellation is a scale-moat story. According to the company’s latest filings and proxy, it operates about 31.7 GW of capacity, nearly 90% of which is emissions-free, and generated roughly 186 TWh of clean energy in 2024—around 10% of total U.S. emissions-free output. 2024 10-K 2025 proxy That portfolio avoids around 125 million metric tons of CO₂ equivalents annually, giving Constellation a clear climate positioning advantage. 2025 proxy

On the commercial side, the company serves roughly 75% of the Fortune 100, delivering about 202 TWh of power and around 800 Bcf of gas in 2024. 2024 10-K 2025 proxy Commercial and industrial renewal rates are strong—78% for power and 88% for gas—which speaks to customer stickiness and service quality. 2025 proxy And in summer 2025, Constellation’s “clean energy centers” achieved an impressive 98.8% capacity factor after more than $7 billion of nuclear investment, underscoring operational excellence. TD World (Sept 2025)

Layered on top of this physical and commercial footprint is one of the most powerful secular tailwinds in the market: AI and data-center-driven load growth.

Why AI and Data Centers Matter So Much

Several industry sources, including Utility Dive, estimate that data centers alone could account for roughly 44% of incremental U.S. electricity demand over the coming decade. At the same time, the U.S. is retiring significant coal capacity and even some gas plants, tightening the market for firm, dispatchable power. Public Power (Feb 2025)

Constellation sits precisely at the intersection of these trends:

It owns a large, reliable nuclear fleet that can provide 24/7 carbon-free power.
It operates across all major U.S. ISOs (PJM, MISO, NYISO, ERCOT, ISO‑NE, WECC) and parts of Canada. 2024 10-K
It has already signed long-dated PPAs with Microsoft and Meta tied to nuclear restarts and uprates, such as the 20‑year deals supporting Three Mile Island Unit 1 (Crane Clean Energy Center) and the Clinton plant in Illinois. 2024 10-K Utility Dive (June 2025)

From a narrative perspective, this is compelling: scarce nuclear assets, directly contracted to hyperscalers, in a world hungry for clean, firm capacity.

Policy as a Profit Engine: The IRA’s 45U Nuclear PTC

Equally important is the policy backdrop. The Inflation Reduction Act introduced the 45U nuclear production tax credit for existing nuclear plants, which has rapidly become a major earnings driver for Constellation.

According to the company’s 2024 10‑K, nuclear PTC contributed about $2.08 billion of operating revenue in 2024 alone. 2024 10-K That’s a massive number relative to the business and a key reason GAAP cash flow has started to improve.

But that support is not permanent. The PTC currently runs through 2032, and its exact monetization and refund mechanics depend on evolving IRS and Treasury guidance, as highlighted by the American Public Power Association’s commentary on implementation. Public Power (Aug 2024) State-level zero-emission credit (ZEC) programs layer on additional complexity and potential refund obligations. 2024 10-K

For now, policy is a powerful tailwind. The key investor question is how durable and predictable that support will be across a 10–20 year horizon.

Is CEG Stock a Buy in 2025 at Growth-Equity Multiples?

We think the business merits a premium. The real question is: how much?

FMP data show Constellation trading around: FMP (2025)

Share price: ~$360
Market cap: ~$112.6 billion
P/E: ~41x
EV/EBITDA: ~17.4x
P/B: ~7.9x
ROE: ~26%

The stock has appreciated roughly 56.9% over the last 12 months, and total shareholder return since the 2022 spin is over 360%. FMP (2025) 2025 proxy That’s extraordinary for a nominal “utility” and reflects a re-rating toward a high-growth, AI-and-decarbonization compounder.

From a value-investing lens, we see three key issues at this price:

1. Cash flows have been volatile and policy-dependent.

GAAP operating cash flow (CFO) was negative from 2022–2024 and only turned clearly positive in 2025, reaching $3.432 billion in the first nine months. 2024 10-K 2025 10-Q Free cash flow has swung between large negatives and strong positives, driven by collateral movements, hedging, and nuclear decommissioning trust (NDT) activity.

2. Interest coverage and traditional credit metrics don’t scream “low-risk utility.”

The report flags negative interest coverage of about -11.23x on a reported basis, despite net debt/EBITDA sitting at a moderate ~0.77x. FMP (2025) That mix—low leverage, but weak GAAP coverage—highlights how accounting complexity masks underlying earnings power.

3. A conventional DCF “breaks.”

When you run a DCF anchored on historical free cash flow volatility, you get a mechanically negative intrinsic value, not because the business is worthless, but because the inputs are wildly unstable. FMP (2025) That’s a red flag for any investor relying on steady-state FCF assumptions.

Management encourages investors to focus on non-GAAP metrics such as “free cash flow before growth,” adjusted operating earnings, and CFO/Debt, which strip out hedging, NDT mark-to-market, pensions, and working capital swings. 2024 10-K Those may better capture economic reality, but they are still layered on top of a highly complex, collateral-intensive merchant power business.

Our takeaway: Constellation is not “cheap” by any traditional measure. Investors buying here are effectively underwriting a long runway of high growth in AI demand, continued policy support, and flawless integration of a massive acquisition.

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How the Calpine Acquisition Changes the Story

One of the biggest swing factors for Constellation over the next few years is the proposed Calpine deal.

Key Deal Terms and Strategic Rationale

Per the company’s public disclosures and industry reporting, the transaction will: 2024 10-K Public Power (Jan 2025)

Create a combined platform of around 60 GW of zero- and low-emission capacity, making it the largest U.S. generator by capacity.
Deepen exposure to high-growth markets like Texas (ERCOT) and California.
Bring in a significant gas and geothermal fleet, plus a strong competitive retail position.
Involve roughly $4.5 billion of cash, about 50 million new CEG shares, and the assumption of roughly $12.7 billion of Calpine net debt.

Management and the board project that by 2027, the combined company will generate more than $2 billion of incremental annual free cash flow and over $2 per share of EPS accretion, while reducing leverage to targeted levels. 2024 10-K Public Power (Jan 2025) They value Calpine at an implied 2026 EV/EBITDA multiple of about 7.9x—full, but not extreme for merchant gas and geothermal assets. Public Power (Jan 2025)

Strategically, we understand the logic:

Scale and diversification across more markets and fuel types.
Flexibility from gas assets to backstop intermittent renewables and partner with nuclear.
Optionality on decarbonizing gas via CCS and hydrogen, supported by green financing initiatives. Public Power (Mar 2024) Utility Dive (Mar 2024)

But with that upside comes real risk.

Integration, Leverage, and Regulatory Complexity

There are several ways the Calpine deal could go sideways:

Regulatory and antitrust remedies.

Regulators have already required Constellation to divest multiple gas plants in Texas and Pennsylvania to mitigate market-power concerns. Public Power (Dec 2025) Additional mitigation demands could dilute the synergy story or delay integration.

Leverage and capital allocation.

Absorbing $12.7 billion of net debt while continuing a 10% annual dividend growth policy and ongoing buybacks is ambitious. 2025 proxy 2024 10-K Execution needs to be nearly perfect to hit the 2027 deleveraging targets without sacrificing balance-sheet strength.

Commodity and policy exposure.

Calpine’s gas fleet is inherently more exposed to long-term decarbonization risk. Tighter climate policy could force expensive retrofits (CCS, hydrogen blending) or accelerate depreciation. Utility Dive (Mar 2024)

Execution risk.

Large-scale integrations are inherently challenging, particularly when combining merchant power portfolios with complex hedging strategies, regional market structures, and environmental compliance regimes. 2024 10-K

Management’s projections are based heavily on adjusted metrics and pro forma scenarios; Constellation’s own 10‑K points out the potential for significant transaction costs, EPS dilution, and integration complexity. 2024 10-K We think those disclosures are a signal to stay conservative in modeling.

From our standpoint, the Calpine deal is a genuine value-creation opportunity—but with enough moving parts that we’d rather see early integration results before paying a steep multiple for promised 2027 outcomes.

Will Constellation Deliver Durable, Less Volatile Free Cash Flow?

For us, this is the crux of the long-term thesis.

The History: Negative GAAP CFO, Then a Turnaround

Looking at recent history, GAAP CFO has been bumpy:

2022–2024: Negative GAAP operating cash flow overall, driven by collateral requirements, hedging changes, and working-capital swings. 2024 10-K
9M 2025: A clear inflection, with $19.459 billion of operating revenue, $2.488 billion of operating income, $1.887 billion of net income, and $3.432 billion of CFO. 2025 10-Q

Free cash flow has been similarly volatile. FCF data in the report show large negative figures in 2022 and 2023 (e.g., around -$1.8 billion in 2022 and -$2.5 billion at the end of 2023), but strong positives emerging in 2025 (e.g., ~$2.24 billion in both Q2 and Q3 2025). FMP (2025)

Management is effectively saying: “Trust the adjusted metrics; the GAAP noise will normalize.” We don’t dismiss that argument in a collateral-heavy business, but we don’t blindly accept it either.

What We Want to See as Value Investors

Our stance right now is “wait.” Here’s what would move us toward a bona fide “buy”:

2–3 consecutive years of solid, positive GAAP CFO and free cash flow (after sustaining capex), not just one good year driven by a policy step-change. 2024 10-K 2025 10-Q
Stable or improving interest coverage on a GAAP basis, even after the Calpine deal and associated debt.
Clear evidence that policy support is durable, with IRS guidance on 45U, state ZEC programs, and refund obligations largely clarified and absorbed. Public Power (Aug 2024)

If Constellation can deliver that, we’d be far more comfortable paying a premium multiple for what looks like a structurally advantaged, capital-light, cash-generative asset base.

On the flip side, what would push us toward a “sell” or at least a strong underweight?

A relapse into negative or highly volatile CFO despite continuing nuclear PTCs.
Material adverse changes to 45U, ZECs, or nuclear sentiment that meaningfully erode nuclear economics. 2024 10-K Public Power (Nov 2022)
A Calpine outcome that brings leverage up and free cash flow down versus current guidance, especially if offset by equity issuance at unattractive prices. 2024 10-K

In other words, we’re looking for the business to “prove it” in GAAP cash terms, not just in adjusted slides.

Key Risks That Could Break the Thesis

Beyond Calpine and cash flow, there are several risk vectors we think investors should monitor closely.

1. Policy and Regulatory Risk

Constellation’s moat is partly policy-constructed. The IRA’s 45U credit and various state ZEC regimes are central to the economics of the nuclear fleet. 2024 10-K The company’s 10‑K notes roughly $1.03 billion of potential ZEC-related refunds or payables at year-end 2024, depending on future interpretations. 2024 10-K

Any of the following could be problematic:

IRS guidance that reduces the effective value of 45U or adds unexpected refund risk. Public Power (Aug 2024)
State-level changes to ZEC frameworks or nuclear sentiment.
Shifts in eligibility for green finance or ESG frameworks that weaken Constellation’s cost of capital. Public Power (Nov 2022)

The policy backdrop currently looks favorable—witness the U.S. government’s target to add 200 GW of nuclear by 2050. Public Power (Nov 2024) But we treat that as “supportive but not guaranteed.”

2. Nuclear Operational and Safety Risk

Constellation’s nuclear fleet is a core part of the moat, but also a source of asymmetric risk.

On the positive side:

Nuclear plants achieved a 98.8% average capacity factor in summer 2025 after heavy investment. TD World (Sept 2025)
NRC licensing pathways and IRA economics support life extensions and restarts. 2024 10-K

On the risk side:

Extreme weather, mechanical failures, or safety incidents could reduce capacity factors well below peer norms, hurting earnings and undermining the “reliability” narrative. 2024 10-K
Public and political backlash to any significant nuclear event—even if not at a Constellation site—could challenge policy support.

Nuclear is a moat because it’s hard to build and operate; that same difficulty is why incidents can be so costly.

3. Merchant Price and Commodity Exposure

Despite hedging and long-term contracts, Constellation remains exposed to merchant power and gas prices.

The company’s 2025 10‑Q notes that a $5/MWh reduction in average energy prices could cut 2026 earnings by about $219 million on the unhedged portfolio. 2025 10-Q That sensitivity, combined with collateral requirements and trading operations, helps explain why past cash flows have been volatile. 2024 10-K

Investors should keep an eye on:

Forward curves for power and gas in Constellation’s core markets (PJM, ERCOT, etc.).
Capacity auction results and market design changes.
Collateral and margin requirements flowing through the cash flow statement.

4. Demand Risk: What If AI Disappoints?

The market is currently extrapolating robust AI/data-center load growth, and Constellation is well positioned to benefit if that plays out. Utility Dive (Jan 2025)

But if:

AI workloads grow more slowly,
efficiency gains offset power consumption,
or hyperscalers pivot to building their own on-site generation or contracting with other providers,

then today’s high multiple could prove optimistic. Constellation’s long-dated PPAs with Microsoft, Meta, and federal customers provide some protection, but not a complete hedge. 2024 10-K Utility Dive (June 2025)

How We’d Approach CEG as Value-Oriented Investors

Putting all of this together, how do we think investors should handle CEG today?

Our Current Stance: High-Quality, But Wait for a Better Setup

Our judgment, based on the data in the 10‑K, 10‑Q, proxy, and third-party sources, is:

Business quality: High. Constellation owns scarce nuclear scale, has strong customer relationships, and sits directly in front of major secular tailwinds. 2024 10-K 2025 proxy
Balance sheet: Reasonably solid today, with modest net debt/EBITDA, but pro forma leverage will rise with Calpine. 2024 10-K
Valuation: Demanding. The stock trades at growth-equity multiples after a huge run, with limited margin of safety if execution stumbles or policy support weakens. FMP (2025)
Cash-flow profile: Improving but unproven from a GAAP standpoint; we’d like more years of evidence before paying up.

Given that mix, our bias is to watch rather than chase. For long-term, patient capital, we’d be more excited if one of two things happened:

1. The stock corrected to a more modest multiple, perhaps on macro or sector weakness rather than company-specific issues.

2. Constellation delivered 2–3 years of strong, relatively stable GAAP free cash flow and demonstrated successful, FCF-accretive integration of Calpine.

Until then, we see Constellation as a name to monitor closely, build a research “dashboard” around (GAAP CFO, FCF, policy developments, Calpine progress, new hyperscaler PPAs), and be ready to act on if the risk/reward skews more favorably. 2024 10-K 2025 10-Q

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