Constellation Energy (NASDAQ: CEG) stock dominated headlines in 2024 with its announcement of a plan to reopen Three Mile Island and supply nuclear power to Microsoft server farms. Constellation is starting off 2025 with even more news -- and even more share price strength. This morning, the electric utility announced plans to acquire natural gas and geothermal electric utility Calpine Corporation.
Investors applauded the move. As of 12:15 p.m. ET, Constellation stock is up 22.5%.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »
The Constellation-Calpine merger
Constellation says that after merging with Calpine, it will be the biggest electric utility in America, with 2.5 million customers, and also the nation's largest clean energy provider.
Constellation plans to pay $16.4 billion for privately held Calpine, transferring 50 million Constellation shares and paying $4.5 billion in cash, plus assuming $12.7 billion of Calpine debt. Thanks to the surge in Constellation's share price post-news, however, the value of this transaction is already growing.
With Constellation shares now costing about $298.50 each, the 50 million share component of the transaction has grown to $14.9 billion in value. Add the cash payment and the assumed debt, and the total value of this transaction now exceeds $32 billion. (Although if you net out the cash Calpine will generate between now and closing, and the value of Calpine's tax loss carryforwards -- worth about $2.5 billion in total -- the value retreats toward $29.5 billion.)
Is Constellation Energy stock a buy?
That's what Constellation is paying. Now here's what it will get: 20% operating earnings growth by 2026 (which implies operating profit of about $10.82 per share that year), and $2 more per share in net profit in later years than Constellation would have earned without Calpine (so probably $11 per share or more). Plus, Constellation projects "double-digit" earnings growth "through the decade."
That sounds pretty good. Still, at a share price of nearly $300, it works out to a P/E ratio of roughly 27.
Call me a skeptic, but that sounds like a lot to pay for an electric company.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $363,307!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $45,963!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $471,880!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of January 6, 2025
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Constellation Energy and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
