The Calpine deal is beneficial for many, and JPMorgan has raised the target price for Constellation (CEG.US) to $358.

JPMorgan upgrades Constellation Energy (CEG.US) to "Overweight" with a price target raised from $348 to $358. JPMorgan is positive on the Constellation's $29bn acquisition of Calpine.

JPMorgan says the blockbuster deal will bring together the largest nuclear fleet in the US with a massive gas business, with total generation capacity over 60GW. The deal marks a significant shift in Constellation's business, which will still be the largest carbon-free generator with over 22GW of nuclear capacity, but adds ~26GW of gas generation capacity and ~1.5GW of geothermal and renewable generation capacity.

The deal is aimed at building a nuclear+gas+geothermal platform that is critical to meeting power demand. The deal also helps Constellation expand in Texas and California. The deal was done on attractive financial terms with an effective EV/EBITDA of 7.9x. The market reaction has been positive with CEG shares up 25% since the acquisition was announced on Friday.

Constellation management expects the acquisition to drive EPS growth of over 20% and annualized free cash flow of over $2bn, which JPMorgan views as very strong.

Moreover, the deal allows Constellation to offer more comprehensive supply solutions across a broader market. While initial concerns were raised about dilution of the company's carbon-free assets, JPMorgan remains positive on the overall gas business outlook. The broader business will benefit from the current favorable power supply-demand trends.