Constellation Energy (CEG, Financial) shares fell by 10.7% today, despite surpassing third-quarter earnings expectations. The drop in stock price highlights the market's reaction, as the company's strong financial performance was overshadowed by investor concerns.
In the third quarter, Constellation Energy reported non-GAAP earnings of $2.74 per share and GAAP earnings of $3.82 per share, marking a significant 69% increase from the previous year. Sales exceeded expectations, with the company generating over $6.5 billion, a 7% increase year-over-year.
The company's recent announcement to restart the nuclear power Unit 1 at Three Mile Island for Microsoft's AI data centers, spanning a 20-year contract, added uncertainty among investors. This unease is partly due to the Federal Energy Regulatory Commission's (FERC) recent decision to deny a similar request from Talen Energy for an Amazon data center, leading to potential parallels and regulatory concerns.
Constellation (CEG, Financial) is currently trading at approximately 30.69 times its trailing twelve months earnings. Its valuation is significantly above its GF Value estimate of $95.4, suggesting that the stock may be significantly overvalued. The price-to-earnings ratio and price-to-book ratio are both near their 3-year highs, at 30.69 and 6.32 respectively, which raises questions about further growth potential.
Despite a robust increase in earnings, Constellation faces challenges. The revenue per share has been declining over the past 12 months, and its gross margin has shown a long-term decline, averaging an annual rate of -8.9%. Moreover, the stock's Altman Z-Score of 2.02 places it in the grey area, indicating potential financial stress.
Investors should consider these factors when evaluating Constellation (CEG, Financial), keeping in mind its robust earnings growth against a backdrop of valuation concerns and regulatory uncertainties.
