Key Points
Constellation Energy reported a 33% year-over-year increase in adjusted operating earnings and raised its full-year guidance.
Its acquisition of Calpine added significant power generation capacity and boosted earnings.
The company secured major power purchase agreements with major companies and added to its agreements in the second quarter.
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Energy demand is booming, and Constellation Energy (NASDAQ: CEG) is one stock riding this wave higher. The company’s second-quarter earnings results were solid, and it also raised its earnings guidance for this year.
Constellation has made major deals with hyperscalers and is expanding its massive power-generation footprint amid this historic surge in energy demand. Here’s what’s driving the company’s strong performance, and what investors can expect going forward.
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The driving force behind Constellation’s beat-and-raise quarter
In the second quarter, Constellation Energy reported adjusted operating earnings of $2.55 per share, or $920 million, a 33% increase from last year. This came in well above consensus estimates of $2.34 operating earnings per share. Following its strong quarter, Constellation raised its full-year adjusted operating earnings guidance range by $0.50 per share, to $11.50 to $12.50 per share.
Constellation’s beat-and-raise quarter was driven by the integration of its Calpine acquisition, which closed on Jan. 7 this year. The acquisition gave Constellation even more power-generating capacity, with up to 22 gigawatts (GW) from natural gas and geothermal power plants.
During its first quarterearnings call management noted that integrating Calpine contributed roughly $2 per share in accretion to its adjusted earnings per share (EPS). While Calpine’s energy production boosted Constellation’s adjusted earnings, this figure strips out one-off acquisition costs and non-cash amortization of acquired contracts from Calpine. Without these adjustments, Constellation’s generally accepted accounting principles (GAAP) EPS declined year over year, from $2.67 last year to $1.42 in the recent quarter.
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Constellation’s massive power generation capacity makes it an ideal partner for hyperscalers
Constellation is the largest independent power producer (IPP) in the U.S. following its acquisition of Calpine. In total, the company boasts 55 GW of power generation capacity, including the country’s largest nuclear energy fleet.
Because of its IPP business model, Constellation sells power generation capacity into competitive wholesale markets and through power purchase agreements (PPAs) with hyperscalers, allowing it to benefit from tight energy markets.
The company has leveraged its assets to secure major long-term PPAs with Microsoft and Meta Platforms. As part of its agreement with Microsoft, it will restart Three Mile Island Unit 1, now called the Crane Clean Energy Center. The company cleared regulatory hurdles and has delivered hardware to the site in recent months; the site is projected to reopen in 2027.
In addition, the company signed more long-term PPAs during the second quarter for 920 MW of nuclear energy for investment-grade customers. The agreements range from 15 to 20 years, with some scheduled to begin as early as 2029. It also signed a 176 MW agreement with Walmart, the retailer’s first-ever nuclear PPA.
More growth ahead for Constellation
Constellation is growing steadily and continues to lock in long-term PPAs with major customers. The company is raising its forecast due to strong growth driven by its Calpine acquisition and expects to continue bringing more capacity online in the coming years.
Its recent 34% pullback from its 52-week high, coupled with its massive power generation capacity and tight energy markets as more data centers come online, makes Constellation’s stock an attractive choice for long-term investors right now.
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Courtney Carlsen has positions in Constellation Energy, Meta Platforms, and Microsoft. The Motley Fool has positions in and recommends Constellation Energy, Meta Platforms, Microsoft, and Walmart. The Motley Fool has a disclosure policy.
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