The share price of Constellation Energy (CEG +0.76%) has risen nearly 50% over the past year. The average utility stock, using the Vanguard Utilities ETF as an industry proxy, is up just 11.8% while the S&P 500 (^GSPC 1.25%) has risen roughly 12.7%. Is Constellation Energy worth buying now after such an outsize advance?
What does Constellation Energy do?
Constellation Energy generates and sells electricity. However, it does not operate within the regulated utility sector. It is an independent power producer that sells its electricity under long-term contracts to other companies and customers. This is a very different approach that exposes Constellation to market prices and vastly different supply/demand dynamics.
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There is more risk involved in operating as an independent power producer. There is also more upside opportunity, as regulators aren't capping the prices the company can charge or limiting its ability to expand its business. Notably, Constellation Energy is in the middle of buying Calpine Group from a private equity group for $26.6 billion, including debt.
Adding Calpine will significantly broaden Constellation's portfolio. It will add geographic reach, giving the company more even exposure across the United States. And it creates a company with material positions in nuclear, renewables, storage, natural gas, and geothermal energy. Strategically, it looks like a good deal.
Constellation is performing well right now
Constellation expects the addition of Calpine to be immediately accretive to earnings. However, even without the addition of Calpine, Constellation is performing very well as a business. In the third quarter of 2025, the company's adjusted earnings came in at $3.04 per share, up from $2.74 in the prior year.
A key part of Capline's strength comes from its nuclear reactor fleet. The company is the largest operator of nuclear power in the United States. Nuclear power has been experiencing something of a renaissance as rising electricity demand from data centers, artificial intelligence, and electric cars has shifted the trajectory of overall power demand into a higher gear.
NASDAQ: CEG
Key Data Points
With demand expected to remain elevated for years, the future looks bright for Constellation Energy's business. The problem for investors looking at the stock today is that Wall Street appears well aware of the opportunity. The stock price advance over the past year is just one example. Another is the stock's 40 times price-to-earnings ratio and misery dividend yield of just 0.4%.
For reference, the S&P 500 index's P/E ratio is 28.4 times, and the index's yield is 1.1% or so. The S&P 500 index is trading near all-time highs. Vanguard Utilities ETF, meanwhile, has an average P/E of 22.1 times and a dividend yield of 2.5%. Although Constellation Energy isn't a regulated utility, it still looks rather expensive. There is a very real risk that investors have gotten too excited about the company's connection to nuclear power.
Constellation is probably best left on the wish list
If you overpay for a good business, it can turn into a bad investment. That wisdom was provided by Benjamin Graham, often referred to as the father of fundamental investing. He was also instrumental in training Warren Buffett, who also shies away from overpaying for stocks. Don't ignore this age-old wisdom as you are examining Constellation Energy.
Yes, the company is performing well. Yes, the business appears very well-positioned. Yes, it is growing, with a further boost likely to follow the Calpine acquisition. However, investors appear to be aware of all this good news and have already factored it into the stock price. Right now, most investors would likely be better served by keeping Constellation on their wish lists.
