Constellation Energy Corp (CEG)

Conclusion

Constellation Energy Corporation produces and sells electricity and natural gas across the United States from about 31,676 megawatts of nuclear, wind, solar, gas and hydroelectric capacity. It serves distribution utilities, municipalities, cooperatives and commercial, industrial and residential customers. At 276.09 USD on 2026-11-09, the market capitalisation is 97.8 billion USD.

The verdict is overvalued. The fair value band runs from 109.02 to 163.52 USD, with a midpoint of 136.27 USD and a margin of safety of -50.6% at the current price. Enterprise value to EBITDA of 15.1x is 5.7% above its ten-year median of 14.3x, and price to sales of 3.1x is 54.5% above its median of 2.0x. Price to book of 3.1x is 33.8% below its median of 4.6x. The DCF gives 14.83 USD per share at a discount rate of 10.51%, and the fair value from historical multiples is 257.71 USD. The reverse DCF implies growth of 48.5%, while revenue grew at 7.7% a year over five years and earnings per share at 32.6% a year.

What holds the case up is earnings per share growth of 32.6% a year over five years, an operating margin of 13.3% against a ten-year median of 4.9%, and a share count that fell at 0.8% a year over five years. What would break it is the return on invested capital of 5.9% against a cost of capital of 9.0%, an Altman Z-score of 1.56, and free cash flow conversion of 8.9% over the last twelve months.

Financial health

Financial strength is yellow: the current ratio of 1.46 and interest coverage of 6.3x support the balance sheet, while net debt to EBITDA of 2.94x and an Altman Z-score of 1.56 pull it down. The quick ratio is 0.44 and debt to equity is 0.77. Net debt to EBITDA is rated neutral, interest coverage neutral, and the current ratio good. The Altman Z-score of 1.56 falls in the distress zone, but that model was designed for manufacturers, so the reading is only indicative for this utility. Insolvency risk is low, with a probability of about 1.3% by the estimate of the Ohlson model over one to two years.

Earnings quality

Earnings quality is yellow. Free cash flow conversion is 8.9% over the last twelve months, but over five years it averages a negative 248.1%, which weighs heavily. Free cash flow after stock-based compensation is 309 million USD, and the accrual ratio of -3.5% is a mildly favourable sign. The stock-based compensation figure is not available for this analysis. The Piotroski score is 6 out of 9. The Beneish M-score is not available. The company beat earnings estimates in 5 of the last 8 quarters, with an average surprise of 3.5%. Current-year estimates rose 4.0% over 90 days, with one downward revision in the last 30 days, while next-year estimates changed 0.6% over 90 days, with two upward and one downward revision in the same period.

Profitability

Profitability is yellow. Margins are well above their ten-year medians: gross margin is 22.1% against 17.1%, operating margin 13.3% against 4.9%, and net margin 11.1% against 4.7%. Margin stability is 0.90. Return on invested capital is 5.9%, against a weighted average cost of capital of 9.0%, so the given difference of -3.1% shows that the company destroys value at current returns. Its five-year median return on invested capital is 5.5%. Return on equity of 10.8% is flattered by leverage: the DuPont split gives a net margin of 9.1%, an asset turnover of 0.45x and an equity multiplier of 3.94x. The tax rate is 33.8%.

Growth

Growth is green. Revenue compounded at 1.5% a year over three years, 7.7% over five years and 2.9% over ten years. Earnings per share compounded at 32.6% over five years and 5.8% over ten years, and free cash flow per share at 14.1% over ten years. Revenue grew in 6 of the last 10 comparable years. The analyst estimate for next-year earnings per share growth is 10.0%. The five-year earnings figure is well above the revenue figure, so the earnings growth rests on margin expansion rather than on sales.

Valuation

Valuation is red. The price-to-earnings ratio is 28.2x, the free cash flow yield 0.3%, and the earnings yield 3.5%. Against ten-year medians, enterprise value to EBITDA is 5.7% above its median, price to sales 54.5% above, and price to book 33.8% below. The DCF gives 14.83 USD per share at a discount rate of 10.51%, with a terminal value share of 50.3%. The fair value band of 109.02 to 163.52 USD is an order-of-magnitude estimate built on fixed assumptions, including a 5% equity risk premium and capped growth, and is not a price target. The reverse DCF implies growth of 48.5% against revenue growth of 7.7% a year over five years. The dividend yield is 0.56%, with a forward yield of 0.69%, and the payout on free cash flow is 178.3%.

Risks

Each weak number carries a specific risk. A return on invested capital below the cost of capital means each new investment adds less value than it costs, so the earnings growth must come from margins rather than capital. Net debt to EBITDA of 2.94x leaves little room if earnings fall. An Altman Z-score of 1.56 and weak free cash flow conversion over five years suggest that reported earnings have not turned into cash consistently. The payout on free cash flow of 178.3% means the dividend is not covered by free cash flow. Stock-based compensation and the Beneish M-score are not available, so dilution and earnings manipulation risk cannot be fully assessed. This analysis has no debt maturity schedule and no revenue split by segment, so refinancing risk and the source of growth cannot be tested.