Before the bell today, Constellation Energy Group
Inc. (CEG) reported its fourth quarter and fiscal 2011
results. Adjusted earnings per share came in at 5 cents, way below
the Zacks Consensus Estimate of 63 cents. Quarterly earnings were
also lower than the year-ago earnings of 42 cents per share. On a
reported basis, including one-time items, loss per share came in at
$2.91 versus earnings of 79 cents per share in the year-ago
quarter.
Fiscal 2011 adjusted earnings came in at $2.12 per share,
falling short of the Zacks Consensus Estimate of $2.94. The
reported figure was below the fiscal 2010 earnings of $3.06 per
share. On a reported basis, however, the company digested a loss of
$1.70 per share for fiscal 2011 versus a wider loss of $4.90 per
share in fiscal 2010.
Operational Results
Constellation Energy's quarterly revenues of $2,952.8 million
fell way behind the Zacks Consensus Estimate of $5,915.0 million.
Revenues were also lower when compared with $3,474.6 million
in the year-ago quarter.
Non-regulated revenues rose from $391.2 million to $2,299.5
million; regulated electric revenues decreased $88.3 million to
$485.1 million; while regulated gas revenues shrunk $42.3 million
to $168.2 million.
Fiscal 2011 revenue was $13,758.2 million versus the Zacks
Consensus Estimate of $16,480 million. Full year revenue also came
below $14,340 million generated a year ago.
Fiscal 2011 Segmental Results
Baltimore Gas and Electric Company (BGE), overseeing the
company’s regulated business, reported adjusted earnings of 69
cents per share in 2011, flat year over year. However, fiscal 2011
earnings include Hurricane Irene restoration costs of 12 cents per
share.
The Generation segment reported 2011 adjusted earnings of $1.43
per share, down 38 cents from 2010 adjusted results of $1.81 per
share. The decrease is primarily the result of lower power prices,
increased outage days at CENG and last winter's extreme weather in
Texas. These negative variances were partially offset by earnings
contribution from new generation assets.
The NewEnergy segment reported adjusted earnings of 85 cents per
share in 2011, an increase of 8 cents per share compared with 77
cents in 2010. The increase is primarily the result of higher
contribution from structured products and the sale of certain
upstream assets.
Financial Condition
Constellation Energy reported $964.5 million of cash and cash
equivalents at the end of fiscal 2011, compared with $2,028.5
million at fiscal-end 2010. Long-term debt (net of current portion)
increased to $4,456.4 million, compared with $4,054.2 million at
fiscal-end 2010.
Outlook
Baltimore-based Constellation Energy is a supplier of power,
natural gas and energy products and services for homes and
businesses across continental United States.
Earlier, on April 28, 2011, Exelon Corporation
(EXC) entered into a definite agreement to acquire Constellation
Energy, for about $7.9 billion. The exchange ratio agreed upon
represents an 18.1% premium to the 30-day average closing stock
prices of Exelon and Constellation as of April 27, 2011. Following
the completion of the merger, Exelon shareholders will have 78%
ownership of the combined company, while the rest will belong to
Constellation shareholders. The companies expect to close the
merger by early 2012.
This merger will create the nation’s premier competitive energy
products and services supplier in terms of load and customers as
well as the biggest competitive power generator with the largest
nuclear fleet in the U.S. The consolidated entity will also produce
power at much lower costs. The merger will also enable them to
jointly work on fuel innovation, increase efficiency and provide
better options and rates to customers.
The Exelon-Constellation merger has received approval from the
Department of Justice, the New York Public Service Commission, the
Public Utility Commission of Texas and the shareholders of Exelon
and Constellation.
Despite obvious positives to be reaped from such a
consolidation, the deal came after both the companies showed a
dubious track record of failing to acquire or be acquired by other
companies. On a few occasions, Exelon has made unsuccessful
attempts to clinch acquisitions. The target companies, for
instance, were NRG Energy Inc. (NRG) in 2008,
Public Service Enterprise Group Inc. (PEG) in 2004
and Illinois Power Company in 2003.
Constellation Energy came close to be acquired twice before both
the deals fell through. NextEra Energy Inc.'s
(NEE) attempt to buy Constellation was thwarted in 2005 by the
interference of state officials. Another deal to be acquired by
Berkshire Hathaway failed in 2008.
In the near term, with the merger pending approval in Maryland,
we are maintaining our Zacks #4 Rank (short-term Sell rating) on
the Constellation Energy stock. This implies that the stock is
expected to perform lower versus the broader U.S. equity market
over the next 1–3 months. We are, however, Neutral on Constellation
Energy in the long term.
CONSTELLATN EGY (CEG): Free Stock Analysis Report
EXELON CORP (EXC): Free Stock Analysis Report
NEXTERA ENERGY (NEE): Free Stock Analysis Report
NRG ENERGY INC (NRG): Free Stock Analysis Report
PUBLIC SV ENTRP (PEG): Free Stock Analysis Report
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