Constellation Energy's Valuation Check: What the Rally Means

Constellation Energy's stock price has soared 60.1% in the last year and 292.6% in the last three years, driven by increasing demand for clean energy and grid reliability. Despite this, the company scores a 0 out of 6 on valuation checks, including a discounted cash flow model that shows the stock is 40.5% overvalued based on projected future cash flows.

Constellation Energy's (CEG) stock price has witnessed a remarkable surge over the past year, rising by 60.1%, and an even more impressive 292.6% over the last three years [1]. This significant growth can be attributed to the increasing demand for clean energy and grid reliability. However, despite this impressive performance, the company's stock valuation has raised concerns among analysts and investors.

Melius Research initiated coverage on Constellation Energy with a Buy rating and a price target of $462.00, citing the company's dominant position in carbon-free power generation, particularly its leadership in nuclear power production [1]. Constellation Energy generates approximately 10% of all power in the United States and serves three-quarters of Fortune 500 companies along with over 2 million residential customers. The firm's pending Calpine acquisition will further strengthen its market presence.

Despite the strong momentum, Constellation Energy's stock scores a 0 out of 6 on valuation checks, including a discounted cash flow (DCF) model that shows the stock is 40.5% overvalued based on projected future cash flows [2]. This discrepancy has prompted investors to reassess the company's valuation.

Looking at the bigger picture, Constellation Energy shares have climbed more than 280% since the company's spinoff from Exelon in early 2022. Despite the lack of dramatic news, the stock's momentum has cooled a bit in recent weeks. The company continues to post steady revenue and profit growth each year [2]. However, the recent dip in the stock price has led some investors to question whether this is a buying opportunity or if the market is already factoring in all the growth that remains.

Analysts project a fair value for Constellation Energy that sits noticeably above the current share price, driven by anticipated improvements in revenue and margins, supported by positive political and industry trends [2]. Strategic investments and progress in nuclear plant restarts, upgrades, and selective mergers and acquisitions offer visible avenues for substantial capacity additions and operational synergies.

However, regulatory changes or shifts in large customer demand could challenge this outlook and prompt a meaningful reassessment of Constellation Energy’s valuation. The company's high valuation metrics may also limit potential upside, potentially leading to increased volatility if growth expectations are not met [2].

Constellation Energy's strong financial performance, including an adjusted operating EPS of $1.91 for Q2 2025, surpassing analyst expectations, has not been enough to dispel valuation concerns. Analysts have set varying targets for CEG, with Raymond James at $393, Wolfe Research at $350, BMO Capital Markets at $337, and Citi Research at $318 [3].

In conclusion, while Constellation Energy's stock price has soared due to increasing demand for clean energy and grid reliability, the company's valuation remains a contentious issue. Investors should carefully consider both the company's strong fundamentals and the valuation concerns before making investment decisions.

References:
[1] https://www.investing.com/news/analyst-ratings/melius-initiates-constellation-energy-stock-with-buy-rating-on-nuclear-dominance-93CH-4201974
[2] https://simplywall.st/stocks/us/utilities/nasdaq-ceg/constellation-energy/news/constellation-energy-ceg-reviewing-its-valuation-following-r
[3] https://www.ainvest.com/news/constellation-energy-earns-buy-rating-462-pt-melius-research-2508/