Electric Utilities company Constellation Energy is taking Wall Street by surprise today, falling to $279.04 and marking a -19.7% change compared to the S&P 500, which moved -2.0%. CEG is -11.89% below its average analyst target price of $316.69, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Constellation Energy shares have outstripped the S&P 500 by 163.3%, with a price change of 187.1%.
Constellation Energy Corporation generates and sells electricity in the United States. The company is a utility stock. Historically, the utilities sector has proven to be a safe haven during economic downturns, as they provide an essential service that is always in demand. Investors also tend to choose these stocks because they generally pay attractive dividends. But there is no telling if this will continue in the future.
Utilities tend to have high debt levels because of the enormous capital requirements of maintaining their infrastructure. In periods of rising interest rates, a high debt load can prove disastrous for a company. Another source of uncertainty facing the sector is the imminent rollout of new Federal clean power regulations which will increase costs for utilities, but also provide subsidies for the sector — at least initially.
Constellation Energy's trailing 12 month P/E ratio is 30.8, based on its trailing EPS of $9.07. The company has a forward P/E ratio of 30.3 according to its forward EPS of $8.95 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US utilities companies is 20.52, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Constellation Energy's free cash flow, which was $-7723000000 as of its most recent annual report. The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $-3119000000.0 and they've been growing at an average rate of -88.0%. CEG's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 0.4% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Constellation energy's P/B ratio is 6.95 -- in other words, the market value of the company exceeds its book value by a factor of more than 6, so the company's assets may be overvalued compared to the average P/B ratio of the Utilities sector, which stands at 2.2 as of the third quarter of 2024.
Since it has a higher P/E ratio than its sector average, a higher than Average P/B Ratio, and negative cash flows with a downwards trend, Constellation Energy is likely overvalued at today's prices. The company has poor growth indicators because of no PEG ratio and weak operating margins with a positive growth rate. We hope you enjoyed this overview of CEG's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
