Constellation Energy Group Inc. (CEG) received a regulatory approval from the United States Bankruptcy Court for the Southern District of New York approving its acquisition of the generation assets of Boston Generating LLC, a unit of privately held US Power Generating Company.
The $1.1 billion transaction although finalized in August 2010, was held up due to the approval of the court as part of U.S. Power Generating’s ongoing bankruptcy proceedings. However, the final regulatory approval from the Federal Energy Regulatory Commission is still awaited.
Constellation Energy with the approval will acquire five electricity generation plants in Boston of a combined capacity of 2,950 megawatts. This will make the company one of the largest electricity generators in the New England region. New England is a region in the northeastern corner of the U.S., consisting of Maine, New Hampshire, Vermont, Massachusetts, Rhode Island and Connecticut.
Constellation Energy manages and aggregates demand response capacity programs in New York, New England, the Mid-Atlantic states- California, Texas and Ontario, Canada. In addition to providing demand response programs, energy efficiency and renewable energy solutions, Constellation Energy is a leader in competitive electricity and natural gas supply in the U.S.
Constellation Energy remains diversified among owned generation, contractual generation, regulated distribution and competitive supply of energy. Its diverse fleet of power generating units located across the U.S. and Canada is a mix of coal, oil, natural gas and renewable sources (including geothermal, solar, hydro-electric and biomass). Diversified generation assets help Constellation Energy minimize the impact of volatile commodity prices on its input costs.
However, we believe that the above positives have already been reflected in the current valuation of Constellation Energy, leaving little room for above-market gains. Also in the near term, the fortunes of the company appear a little bleak due to a tepid Maryland economy, risks in the merchant power space, pending regulatory cases and a low-dividend yield, which continue to restrain valuation in the near term.
We have a Zacks #3 Rank (short-term Hold recommendation) on the shares. This implies that the stock is expected to perform in line with the broader U.S. equity market over the next 1–3 months. We are Neutral on Constellation Energy in the long-term, which indicates that the shares are expected to replicate its short-term performance, but not beyond 6 months. Consequently, we advise investors against taking any position on the stock for the time being.
A window of opportunity is however, reflected in its Zacks #1 Rank (short-term Strong Buy recommendation) peers like Pampa Energia SA (PAM), IdaCorp Inc. (IDA) and El Paso Electric Company (EE).
CONSTELLATN EGY (CEG): Free Stock Analysis Report
EL PASO ELEC CO (EE): Free Stock Analysis Report
IDACORP INC (IDA): Free Stock Analysis Report
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