Citi downgrades Constellation Brands following Meta deal

Citi downgraded Constellation Energy shares from Buy to Neutral following the signing of a deal with Meta on June 5. The firm cited limited near-term upside after the stock rally caused by the announcement of a power purchase agreement (PPA).

Constellation shares plummeted 2.6% in premarket trading on Wednesday by 08:21 GMT. Citi analyst Ryan Levine argued that the Meta deal marked a significant shift in the power contracting landscape but also prompted a reassessment of valuation assumptions.

Citi believes the agreement is factored into Constellation’s stock 

$CEG | 𝐂𝐨𝐧𝐬𝐭𝐞𝐥𝐥𝐚𝐭𝐢𝐨𝐧 𝐄𝐧𝐞𝐫𝐠𝐲 (CEG): Citi downgrades to 𝐍𝐞𝐮𝐭𝐫𝐚𝐥, raises 𝐏𝐓 𝐭𝐨 $𝟑𝟏𝟖 (from $232).

Post-Meta rally prices in data center upside — valuation now looks full. pic.twitter.com/fRX5UzMU2S

— Hardik Shah (@AIStockSavvy) June 4, 2025

Citi estimates that the 20-year virtual PPA at the Clinton nuclear plant in Illinois will commence in June 2027. The firm also said the agreement was priced in the range of $70 to $95 per megawatt-hour. 

The investment bank acknowledged that the deal adds approximately $12 per share of value versus a no-deal scenario but does not offer a substantial premium for low-carbon nuclear power. Levine also noted the lack of a geographic proximity requirement as a notable feature of the deal.

“This deal has broad implications on the power markets as it signals future contracting activity.”

-Ryan Levine, Wall Street Analyst at Citi.

Levine argued that much of the benefit from such agreements is priced into the stock, which has surged since Citi’s prior upgrade in April. The analyst also raised the price target on Constellation Energy shares to $318 from $232 to reflect the increased scarcity value of the firm’s existing nuclear feet and the potential for additional data center deals.

Citi’s valuation assumes that ~70% of CEG’s existing nuclear plants with licenses expiring before 2045 could secure similar data center deals at around $80/MWh. The investment bank also believes there will be an uplift in EV/EBITDA multiples to reflect their increased scarcity value. 

Still, with Constellation’s shares closing at $313.42 on June 3, the implied return is just 2%, including dividend yield. Levine said there’s a balanced risk to the upside and the downside for CEG. He also sees a high-risk classification of the stock due to volatility in power prices, policy uncertainty, and execution challenges related to plant restarts.

GuruFocus research company noted that the one-year price targets offered by 13 analysts showed the average target price of the energy company is $307.44, with a high estimate of $385.00 and a low estimate of $184.05. The average target indicates a 1.79% drop from the current price of $313.03.

Based on the consensus recommendation from 17 brokerage firms, Constellation’s average brokerage recommendation is currently 2.0, indicating outperform status. The rating scale ranges from 1 to 5, where 1 shows Strong Buy, and 5 denotes Sell.

The analytics firm also estimated that the GF Value for Constellation in one year is $106.54, suggesting a downside of 65.96% from the current price of $313.03. GuruFocus uses GF Value to estimate the fair value at which the stock should be traded. The firm noted that it is calculated based on the historical multiples the stock has traded at previously, as well as past business growth and future estimates of the business’ performance.

Citi downgrades Constellation Brands

Citigroup also downgraded the outlook for Constellation Brands from Buy to Neutral. The firm noted in March that the 2,106 funds or institutions reporting positions in Constellation represent a decrease of 4 owner(s) or 0.19% in the last quarter.

Capital World Investors recorded 9,756K shares, representing 5.40% ownership of the company. The firm reported owning 9,431 shares in its previous filing, representing an increase of 3.33%.

AWSHX – WASHINGTON MUTUAL INVESTORS FUND holds 6,061K shares, representing 3.35% ownership of the company. The firm recorded owning 6,412K shares in its prior filing, indicating a decrease of 5.79%.

Berkshire Hathaway holds 5,624 shares, representing 3.11% ownership at the firm. Vanguard Total Stock Market Index Fund Investor Shares holds 4,848K shares, representing 2.68% ownership of the company and a 7.13% drop from the reported 5, 93K shares in its previous filing.

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