Assessing Constellation Energy’s Valuation After a 318% Three Year Share Price Surge

• If you have been wondering whether Constellation Energy is still worth buying after its huge run, you are not alone. This breakdown will help you decide if the current price still stacks up to its fundamentals.
• The stock has slipped about 0.6% over the last week but is still up 5.5% over the past month, 47.2% year to date, and 53.3% over the last year, with a 318.0% gain over three years reshaping expectations around its growth and risk profile.
• Investors have been reacting to Constellation Energy's growing role in the US clean energy shift, as policy support and corporate decarbonization pledges continue to highlight the advantages of its nuclear and zero carbon generation assets. At the same time, ongoing industry conversations around grid reliability and baseload power have kept high quality utility names like Constellation on the radar of long term investors.
• Despite that backdrop, Constellation Energy only scores a 2 out of 6 valuation checks, which means it screens as undervalued on just a couple of our metrics. We will unpack what that implies across different valuation approaches and then finish with a more holistic way to think about what the stock may be worth.

Constellation Energy scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Constellation Energy Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth by projecting the cash it can generate in the future and discounting those cash flows back to today in dollar terms.

For Constellation Energy, the 2 Stage Free Cash Flow to Equity model starts from last year’s free cash flow of about $657.2 million in the red, reflecting heavy investment and sector volatility. Analyst and extrapolated forecasts indicate a sharp recovery, with free cash flow expected to climb to roughly $7.9 billion by 2035, based on a mix of explicit analyst estimates through 2029 and Simply Wall St growth assumptions thereafter.

Aggregating and discounting these projected cash flows implies an intrinsic value of about $492.26 per share. Compared with the current market price, this output suggests the stock trades at a 27.4% discount to its DCF estimate, indicating the market may be underpricing the company’s long term cash generation from its zero carbon fleet.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Constellation Energy is undervalued by 27.4%. Track this in your watchlist or portfolio, or discover 912 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Constellation Energy.

Approach 2: Constellation Energy Price vs Earnings

For established, profitable companies, the price to earnings ratio is often the cleanest way to see what investors are willing to pay for each dollar of current profit. It naturally blends expectations for future growth with perceptions of risk, since faster growing and lower risk businesses usually command a higher, or more expensive, PE multiple.

Constellation Energy currently trades on a PE of about 40.7x, roughly double both the Electric Utilities industry average of around 20.1x and the broader peer average of about 20.7x. On those simple comparisons alone, the shares look expensive. However, those benchmarks do not fully capture the company specific mix of earnings growth, zero carbon positioning, and balance sheet and operational risks.

Simply Wall St’s Fair Ratio framework aims to address that by estimating what PE multiple would be reasonable for Constellation Energy given its earnings growth outlook, profitability, industry, market capitalization and risk profile. For Constellation Energy, that Fair Ratio is about 38.1x, only modestly below the current 40.7x. That indicates the market is applying a premium that is largely in line with its fundamentals rather than stretching too far in either direction.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1455 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Constellation Energy Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to attach your own story about Constellation Energy to the numbers by linking what you believe about its revenue, earnings and margins to a financial forecast, a fair value, and ultimately an investment decision.

On Simply Wall St’s Community page, Narratives are an easy, accessible tool used by millions of investors to spell out how they think a company’s story will play out, automatically convert that into projected financials and a Fair Value estimate, and then compare that Fair Value to today’s share price to decide whether they see upside or downside.

Narratives update dynamically as new information, such as earnings or major nuclear policy news, comes in. This means a bullish Constellation Energy investor might build a Narrative around continued data center power deals, rising nuclear cash flows and a Fair Value closer to the upper end of recent targets near $400. A more cautious investor could instead emphasize regulatory and execution risks, slower revenue growth and a Fair Value much nearer the low analyst target around $184, even though both are looking at the same company.

Do you think there's more to the story for Constellation Energy? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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