CEG to Sell 550 MW Gas Plant - Analyst Blog

Constellation Energy Group Inc. (CEG) signed an agreement to sell its Quail Run natural gas plant of 550 MW in west Texas to High Plains Diversified Energy Corporation (HPDEC) for $185.3 million. High Plains Diversified Energy is a municipal utility formed by the West Texas Municipal Power Agency. The agreement of sale of the 550 MW plant is contingent upon High Plains Diversified Energy secure the requisite proceeds from its intended sale of municipal bonds.

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.

Constellation Energy is slated to release its 2010's fourth quarterly numbers as on February 21, 2011. The Zacks Consensus Estimate for the quarter currently stands at 57 cents, higher than the year-ago quarterly earnings of 30 cents.

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 however gets reflected in its Zacks #2 Rank (short-term Buy recommendation) peers like CMS Energy Corporation (CMS) and Consolidated Edison Inc. (ED).

 
CONSTELLATN EGY (CEG): Free Stock Analysis Report
 
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