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September 20, 2010
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Constellation Energy Group Inc. (CEG) signed an agreement to acquire privately held energy management company – CPower. The company expects to close the transaction in the fourth quarter of 2010.
New York based CPower designs and manages programs that allow its customers to efficiently manage electricity demand during peak demand periods. The company provides energy management and demand response services that enable companies to optimize their facilities and operations through strategic energy reduction initiatives and earn market payments for those reductions.
CPower is authorized to manage and aggregate demand response capacity programs in New York, New England, the Mid-Atlantic region, California, Texas and Ontario (Canada).
Constellation Energy’s acquisition of CPower will add approximately 850 MW of demand response capacity that can be dispatched to energy markets throughout North America. The transaction would expand Constellation Energy’s total demand response capacity to 1,500 MW, and both strengthen and complement the company’s position as a leading player in competitive electricity and natural gas supply. The company delivers electricity and natural gas through Baltimore Gas and Electric Company, its regulated utility operating in Central Maryland.
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 four U.S. states (Maryland, Pennsylvania, California and Utah) 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 costs.
However, we believe that the above positives are already reflected in the current valuation of Constellation Energy leaving little room for above-market gain. Also in the near term, the fortunes of the company appear a little bleak due to tepid Maryland economy, risks in the merchant power space, pending regulatory cases and a low-dividend yield – 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 over 6+ months. Consequently, we advise investors not to take any position on the stock for the time being.
A window of opportunity is however reflected in a couple of its Zacks #1 Rank (short-term Strong Buy recommendation) peers Brookfield Infrastructure Partners L.P. (BIP) and Nisource Inc. (NI).
Read the full analyst report on "CEG"
Read the full analyst report on "BIP"
Read the full analyst report on "NI"
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