CEG is undervalued at $300 vs fair value $387; ~30% upside expected in 12-18 months despite recent rally, but conviction is low.

We have great news for Constellation Energy shareholders: Alphabet, Google's parent company, has agreed to sign a $4.3 billion, 20-year deal to purchase energy from Constellation Energy.

Of course, this comes after the company has already signed deals with Amazon and Microsoft to support their energy needs. So, does this make Constellation Energy shares a buying opportunity?

Let's take a closer look at the details of this announcement, and then look at the company's valuation to determine whether it is an attractive long-term investment for investors.

The details of the deal consisted of $4.3 billion to provide 890 megawatts of nuclear power through a 20-year power purchase agreement.

Of course, this was positive news, and CEG's stock rose by more than 12% following the announcement. Constellation Energy stated that the new capacity will come from upgrades at existing sites, so they do not need to build a new site to support this agreement.

In addition to the 890-megawatt nuclear power plant, Google and Constellation also agreed to a 15-year power supply deal for an additional 2.7 gigawatts of capacity.

As I mentioned in January, Amazon signed a deal with Constellation Energy for nuclear power, and Microsoft entered into a 20-year agreement with the company in 2024, under which it will supply power from one of Constellation's previously closed reactors at Three Mile Island by 2028.

Since the beginning of the year until now, Constellation Energy's stock has not performed well. The stock is down 15% even after rising more than 12% today.

However, looking at the past five years, the stock has risen tremendously. It has achieved an increase of over 691%. Therefore, a slight decline here in 2026 is understandable.

The stock is now trading at a forward price-to-earnings ratio of 22.5, which is the average valuation at which the stock has traded according to this metric since 2024.

Based on this news, I have also updated my discounted cash flow calculations for Constellation Energy, and have arrived at a fair value estimate of $387 per share. The current market price after today's significant increase is $300.

For me, I see the potential for Constellation Energy to rise by about 30% over the next twelve to eighteen months. Therefore, despite the rapid rise in the stock price over the past five years, I believe there is still an upside opportunity.

This is good news for energy suppliers like Constellation. In response to the question I posed in the introduction to the video, I see this as a buying opportunity at these prices, despite the stock rising by 12% thanks to this news.

I still think the stock appears to be undervalued, but my confidence level in this rating is relatively low; Because they are essentially providing a primary commodity, I find it difficult to determine which of these energy suppliers stands out from the others.