Constellation Energy Corporation’s stock price has surged to a price of $252.4 today. Ending the day with a 4.0% increase, CEG shares outperformed the S&P500 and Dow Industrial composite indices by 3.0% and None% respectively, closing in on their 52 week high of $288.75 Over the last 12 months, Constellation Energy is up 115.7%, and has outperformed the S&P 500 by 90.9%. Now, the Large-Cap Utilities company is 9.3% below its average target price of $278.29 and has an average analyst rating of buy.
Constellation Energy's trailing 12 month price to earnings (P/E) ratio is 27.9, which is its share price divided by its trailing earnings per share (EPS) of $9.06. The company has a forward P/E ratio of 28.2 based on its forward EPS of $8.95 -- which is an estimate of future earnings provided by management. The P/E ratio tells us how much investors are willing to pay for each dollar of the company's net earnings from its sales operations. By way of comparison, the average P/E ratio of the Utilities sector is 20.52, but a company's price can remain stable for a long time even if it is over or undervalued.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present value of the company if it were liquidated today (i.e. selling all assets and paying off all debts). Constellation Energy's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 6.0, so the company's assets may be overvalued compared to the average P/B ratio of the Utilities sector, which stands at 2.2.
CEG's average free cash flow in recent years is $-3119000000.0. This represents the sum of inflows and outflows of cash from all sources, including capital expenses. This is the pool of liquidity from which the company can reinvest in its business or pay out dividends to its investors. If these negative cash flows continue, the company may not be able to continue offering its investors a dividend, which over the last year has offered a yield of 0.6%. While not ideal, negative free cash flows are common -- especially in capital intensive businesses or after a period of heavy re-investment.
Since it has a a higher P/E ratio than its sector average, a higher than Average P/B Ratio, negative cash flows, and weak operating margins, Constellation Energy is probably overvalued at current prices. Make sure to complement this brief quantitative review with a qualitative analysis of your own!
