Constellation Energy Group, Inc. (NYSE:CEG)

CAPS Rating: 5 out of 5

An energy company that conducts its business through various subsidiaries including a merchant energy business and Baltimore Gas and Electric Company.

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Member Avatar d1david (29.15) Submitted: 12/20/2011 12:07:20 AM : Outperform Start Price: $39.02 CEG Score: -67.19

sentiment trader

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Member Avatar secretbonus (< 20) Submitted: 8/10/2011 12:12:15 PM : Outperform Start Price: $37.26 CEG Score: -68.27

This one is a no brainer. A chance to purchase EXC via mergers+acquisition of CEG. While the discount isn't very significant, you still get a great company in EXC at an 8% discount here by the end of Jan 2012. You can short EXC if you want to lock in the arbitrage price, but personally I would rather buy EXC here as well so I would not want to short CEG. As strictly an arbitrage play there are better plays out there, so instead purchase EXC at a discount this way... And even if the deal doesn't go through, CEG is still fairly valued to slightly undervalued here anyways.

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Member Avatar bobgavola (< 20) Submitted: 2/14/2011 8:03:26 PM : Outperform Start Price: $30.00 CEG Score: -25.65

Carl Icon plays to win, his way, and wins.

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Member Avatar cmmtgnmn (65.24) Submitted: 1/17/2011 1:32:58 PM : Outperform Start Price: $31.06 CEG Score: -34.31

wow

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Member Avatar globalsailor (45.81) Submitted: 12/24/2010 7:44:30 AM : Outperform Start Price: $29.81 CEG Score: -33.64

The company is trading below it's book value, it just cut its debt about a year ago. Earnings are unusually high because of a sale, but only around five times normal which means that if they go back to normal, it should be still undervalued. The book value for the company is $7.8 billion vs. a market cap of 6.22 billion.

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Member Avatar paradigms (23.93) Submitted: 12/23/2010 11:07:18 PM : Outperform Start Price: $29.93 CEG Score: -34.18

In ‘The Intelligent Investor,’ Ben Graham warns us that a great company isn’t a great investment if we pay too much for its stock. He also advises us to only buy a stock if it is a cheap way to own a desirable business. Well, in many respects, Constellation Energy Group, Inc. (CEG) is both a great company and a desirable business and, but as important, it’s a true value.

CEG, an electric and gas utility, has valuation ratios that will appeal to even the staunchest value investors. With a 1.90 P/E ratio, a .80 price-to-book, and a .44 price-to-sales ratio, CEG looks like precisely the type of company that would appeal to Warren Buffett.

But there are more reasons why CEG would appeal to Warren Buffett and legions of conservative investors. CEG’s liquidity ratios tell us that it’s run very conservatively: with a 2.0 current ratio and a 1.3 quick ratio, CEG charges past industry averages of 1.2 and .70, respectively. CEG also carries very little debt for a utility – remember that utilities are capital-intensive – with a debt-to-equity ratio of just .55, less than half of an industry average 1.34.

Sure, CEG’s dividend yield, at 3.1%, may not be electric -- its five-year average is a touch better at 3.3% -- but all things considered, it’s not bad, either. But the real story may be in CEG’s management making rapid profitability gains: its five-year average net profit margin is 6%, below an industry average of 7.1%, but in the past year, its net profit margin (TTM) jumped to 23%, almost triple the 8% industry average over the same period (TTM).

We can see similar trends with CEG’s ROA and ROI: its five-year average ROA is 5%, almost double an industry average of 2.8%, but let’s take a look at what CEG has been able to do in the past year. CEG’s ROA in the past year (TTM) is 17.40% -- 17.40%! – almost six times an industry average of 3%. And CEG’s ROI has been solidly impressive over the past five years, at 11% compared to an industry average of just 4.8%, pointing to capable management. But let’s look at CEG’s ROI over the past year (ROI): it jumped to 27.9%, over five times the industry average.

CEG’s virtues are hard to ignore: it’s dirt-cheap, it’s very conservatively run, and its management is doing an increasingly good job of generating more profits. I don’t own CEG, but for these reasons, I’d like to.

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Member Avatar pcb10 (< 20) Submitted: 11/30/2010 2:39:27 PM : Outperform Start Price: $27.18 CEG Score: -30.72

The stock is undervalued today. It is trading at a low P/E, and has a strong dividend.

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Member Avatar dlhdouble (78.28) Submitted: 11/5/2010 11:37:13 AM : Underperform Start Price: $29.29 CEG Score: +35.47

Nuclear power is good. A government that doesn't support it isn't.

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Member Avatar caton75 (< 20) Submitted: 11/2/2010 5:48:37 PM : Underperform Start Price: $28.95 CEG Score: +37.85

They just sold their position in the endeaver to build a new nuclear power plant due to the high rate for government insurance

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Member Avatar matt66fool (< 20) Submitted: 9/8/2010 1:05:24 PM : Outperform Start Price: $29.23 CEG Score: -52.68

Good stable company, will rise in difficult times

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Member Avatar BangkokThailand (44.65) Submitted: 9/7/2010 4:59:22 AM : Outperform Start Price: $29.37 CEG Score: -53.72

Slow and steady- low-debt, reasonable growth.

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Member Avatar NoonanR (73.16) Submitted: 8/20/2010 1:02:13 PM : Outperform Start Price: $27.60 CEG Score: -50.31

sg

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Member Avatar valuevulture999 (91.68) Submitted: 8/5/2010 11:08:39 PM : Outperform Start Price: $29.05 CEG Score: -50.09

"Mirror mirror on the wall who is the fairest of them all? Oh vulturevestor, for Constellation Energy is the fairest of them all..." CEG? Why do I want to own a utility company for? Especially one that nearly imploded 2 years ago. Well my dear readers, come with me and I will show you the deal of the week!

The Back Story

CEG is the 3 largest integrated power generation utility in the country. The industry leader is Excelon which happens to be my favorite company in this industry. They have the best cost profile and best safety record that all other players are judged. unfortunately Excelon is not cheap nor a value play. But CEG however is an interesting opportunity. Since I am a value investor, I'm not interested in Snow White. I am only interested in the cleaning girl who can turn into Cinderella. CEG's power is generated mainly from gas and coal which accounts for 58.8% of their generating capacity followed by nuclear at 30%, Hydro electric at 3.3% and the remainder from the renewable sources. Their business is broken into 3 main segments: Merchant energy (crown jewels), Regulated Electric and Regulated Gas. The most important part of their business is their Merchant energy group which contains all their generation assets which sells their power at spot prices. This group also includes customer supply which is service and transmission. The regulated Electric and gas belong to Baltimore Gas and Electric.

What happened to them?

Well back in 2007-2008 we were in the brink of a complete economic meltdown with a definite threat of a second depression. CEG got caught on the wrong side of their own commoditites trading. It was a perfect storm of a crashing real estate market (future energy demand), falling energy prices, uncontrolled derivastive risks. All 3 factors nearly killed them. If they declared bankruptcy they would have been the largest national utility failure since ENron. Warren buffest always said that derivatives were financial weapons of mass destruction. Unfortunately CEG didn't mind their business enough and paid a dear price. Their stock fell to the pojnt where ot attracted the attention of David Sokol of Midamerican Energy (owned by buffet). They absolutely loved their seets and mad an agreement to buyout all of CEG. That was until Electricite de France(EDF) came along and over bid buffet by 30% for only 49.99% interest of the Nuclear assets only. If you look at EDF's latest earnings report, it looks like CEG got the better part of the deal.

Why should you care?

If there is one type of business I absolutely love it's infrastructure; especially one you must buy to power what you would call civilization. The nice thing about this business is the high barrier to entry. You can't start a nuke plant overnight. Ever since the French cash infusion they have made important progress in reducing debt and thereby increasing their liquidity by 91%. They have continued to shed noncore assets in 2010 by selling their geothermal assets as well as their Mammoth Lakes Geothermal assets. They are raising cash to break ground on a new nuclear facility , but theyneed a loan approval from the DOE to make it happen. Southern companies has already been approved on their application. Ever since Obama became president the entire enegy industry has been waiting for the beginning of a new nuclear renaissance. Since cap & trade and the carbon tax are politically dead this year people are still waiting. CEg is currently selling at 30% discount to book value and 55% discount to annual sales. The ebita ratio is 5.13. The utilities as a group has not participated in the rally. The shares are worth at least $44.68 just on book value. IT'S WORTH $63 ON SALES. They are just unloved. but this stock is a screaming buy!!!

What I would like to see

I think there things mgmt can do to increase shareholder value. One is to sell or eliminate noncore businesses in their customer supply segment of their Merchant Energy group. Another is to spin off Baltimor Gas & electric as a separate entity since it only contributes less than 24% of revenue but consumes 23% of the expenses. This can be either be issued as an IPO, sold to a private investor or structured as an MLP. They could use this cash and acquire nuclear generating assets fromother companies such as NRG which didnt have a good quarter. CEG needs to build scale in nukes if they want to play with ther big biys. Carbon tax will come but it's just a matter of when. By doing this they can become a pure play Merchant energy company. They can either grow or be acquired by someone else. Regardless of outcome the shareholders win. The stock currently pays a 3% dividen which is not too bad given where treasury rates are right now.

Things to watch out for:

Like many other investments there are risks to this. Watch out for low energy prices, high interest rates, worsening economy, strict environmental regulation. Remember that 58% of their power comes from the dirty fossil fuels. All of these will negative affect this company.

Happy Hunting folks!

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Member Avatar Dlscwby (59.62) Submitted: 7/12/2010 3:16:19 PM : Outperform Start Price: $31.94 CEG Score: -67.99

High ROE, high profit margin, low price to book.

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Member Avatar madhusker (< 20) Submitted: 4/29/2010 10:51:30 AM : Outperform Start Price: $35.45 CEG Score: -59.49

Nuclear-power projects are the future for sustainability and this company is working to secure the base.

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Member Avatar JesusForgives (58.79) Submitted: 4/8/2010 4:59:09 PM : Outperform Start Price: $34.98 CEG Score: -60.93

This defensive stock has a very low p/e and a roe of 74.81 and a e.p.s of 22.18 I would say watch this stock. Maybe worth buying or buying soon.

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Member Avatar CorgiBeau (28.02) Submitted: 3/17/2010 12:01:03 AM : Outperform Start Price: $34.52 CEG Score: -62.75

Energy is vital to any city, so energy stocks and funds will endure.

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Member Avatar Hedgehogger (< 20) Submitted: 3/8/2010 2:53:35 PM : Outperform Start Price: $34.82 CEG Score: -67.35

Solid electricity producer. Savvy electric power merchant. Well connected in financial community and in Washington. Now they are joined at the hip with Electricite de France, the largest reactor owner in the world.

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Member Avatar jhalovatch (< 20) Submitted: 12/19/2009 6:32:31 AM : Outperform Start Price: $33.05 CEG Score: -67.18

good energy stock

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Member Avatar BicaChica (79.67) Submitted: 11/20/2009 3:48:31 PM : Outperform Start Price: $29.20 CEG Score: -54.42

everydayinvestor

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