Should You Stay Invested in Constellation Energy Before Q2 Earnings?

Image Source: Zacks Investment Research

The consensus mark for earnings is pegged at $2.36 per share, indicating year-over-year growth of 23.56%. The bottom-line estimate has gone up 2.61% over the past 60 days.

Image Source: Zacks Investment Research

CEG’s Earnings Surprise History

Constellation Energy’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missed one, delivering an average surprise of 3.27%.

Image Source: Zacks Investment Research

What Our Quantitative Model Predicts

Our proven model doesn’t predict a likely earnings beat for Constellation Energy this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here as you will see below.

Earnings ESP: The company’s Earnings ESP is -0.39%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Constellation Energy carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Some companies in the same sector that have the right combination of the two factors for an earnings beat this season are National Energy Services Reunited Corp. NESR, Calumet Inc. CLMT and Sempra Energy (SRE. NESR, CLMT and SRE have an Earnings ESP of +7.80%, +169.57% and +0.79%, respectively. NESR currently sports a Zacks Rank #1, CLMT currently has a Zacks Rank #2 and SRE carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Have Impacted CEG’s Q2 Performance

Constellation Energy’s second-quarter earnings are expected to have benefited from rising electricity demand from data centers, supported by its highly efficient nuclear fleet and diversified power generation portfolio.

The company has been strengthening its renewable energy portfolio alongside the nuclear assets, enhancing the diversity of the generation mix and supporting long-term growth. The commercial launch of the 460-MW Pin Oak Creek Energy Center during the second quarter and the commissioning of the 105-MW Pastoria Solar Project in April are likely to have provided an incremental boost to earnings. Contribution from the acquired Calpine assets is also expected to have boosted second-quarter performance.

The company continues to benefit from long-term power purchase agreements with leading technology companies, providing a stable and predictable revenue stream. These agreements are expected to have supported bottom-line growth in the second quarter.

Additionally, the company's ongoing share repurchase program is expected to have boosted shareholder value and contributed to second-quarter earnings growth by reducing the number of shares outstanding at the end of the period.

CEG Stock’s Price Performance

In the past six months, the stock has gained 8.5% compared with the industry’s growth of 3.7%.

Image Source: Zacks Investment Research

CEG Stock Trading at a Discount

Constellation Energy is trading at a discount relative to the industry, with a forward 12-month price-to-earnings of 21.28X compared with the industry average of 23.09X.

Net Profit Margin

Net profit margin measures how efficiently a company converts revenues into profit after all expenses, offering insight into its overall profitability and financial health.

CEG’s net profit margin is 10.86X lower than its industry peer level of 14.29X.

Image Source: Zacks Investment Research

Investment Consideration for CEG

Constellation Energy’s extensive carbon-free generation fleet, combined with the integrated energy supply and risk management capabilities, positions it to capitalize on rising electricity demand, drive revenue growth and support the transition to a cleaner energy future.

The company’s continued investments in customer-centric energy solutions, including carbon-free and renewable energy certificates, are expected to have generated solid returns, enhanced stakeholder value and helped customers achieve emissions reduction targets while optimizing energy costs.

Additionally, Constellation Energy’s strategic investments and the expansion of its generation portfolio through new natural gas and solar assets are expected to have supported earnings growth, with this positive momentum likely continuing into the second quarter.

Summing Up

Constellation Energy's second-quarter earnings are likely to have benefited from rising data center power demand, supported by its efficient nuclear fleet and diversified generation portfolio.

However, given CEG’s net margin is lower than industry peers, prospective investors may be better off waiting for a more attractive entry point before initiating a position.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research