Constellation Energy Corporation (CEG) Earnings

Management highlights

### Long-Term Strategic Outlook - Confirms a base annual earnings growth rate exceeding 20% through 2029, anchored by the inflation-adjusted nuclear production tax credit, high-quality long-term customer contracts, and durable margins from the nation's largest C&I retail platform - Expects a long-term rolling 10%+ base EPS growth rate, a characteristic of high-quality, well-valued companies, and notes the base outlook is conservative with identifiable upside levers - Expects 45% free cash flow growth from the 2026-2027 period to 2028-2029, with projected free cash flow before growth of $11.5 to $13 billion in 2028-2029, up from $8.4 billion in 2026-2027 ### Operational Execution Highlights - Delivered strong Q1 2026 financial results: GAAP earnings of $4.49 per share and adjusted operating earnings of $2.74 per share, $0.60 per share higher than Q1 2025, in line with company expectations - Completed $335 million in share repurchases over the past few weeks, buying back 1.2 million shares at an average price of ~$285 per share, demonstrating confidence in the company's long-term value and disciplined capital allocation - Received recognition as Barron's 2026 most sustainable U.S. public company, ranking first among the 1,000 largest U.S. publicly traded firms based on 230+ performance metrics across stakeholder and environmental criteria - Secured PUCT approval for the net metering agreement for the Cyrus One co-located data center project at the Freestone Energy Center in Texas; substation construction is underway, with energization expected in Q4 2026 ### PJM Regulatory Progress - PJM has released a market-based proposal to address incremental capacity needs from large load growth, with a defined timeline to vote on a final framework and submit the proposal to FERC in June, which is faster than management expected - Clarity on PJM rules will unlock economic expansion across the Mid-Atlantic and Midwest, improve grid system utilization, and lower average power costs for all customers by bringing on new large loads and managing peak demand more dynamically - While some customers have paused contracting to wait for regulatory clarity, others have continued advancing negotiations, and management expects project activity to pick up quickly once rules are finalized ### Data Center Demand Positioning - Hyperscaler demand for power to support additional compute capacity has not slowed; 2026 projected hyperscaler spending is nearly 75% higher than 2025 and continues to be revised upward - Constellation is uniquely positioned with available land at existing generation sites, pre-existing grid interconnection paths, and a diverse portfolio of clean firm generation to meet customer needs, with a proven track record of navigating regulatory frameworks across markets like ERCOT - The Calpine acquisition has supplemented Constellation's development and commercial capabilities, enabling the company to unlock additional value from its combined portfolio of nuclear and natural gas assets while supporting customer growth and stabilizing costs for residential users

Guidance

- Affirms full-year 2026 adjusted operating earnings guidance range of $11 to $12 per share, unchanged from the March 31, 2026 update - Maintains base long-term annual earnings growth exceeding 20% through 2029, with conservative base assumptions that allow for identifiable upside from multiple optional levers - Updates long-term free cash flow guidance: projects $8.4 billion in free cash flow before growth for 2026-2027, and $11.5 to $13 billion in free cash flow before growth for 2028-2029, representing a 45% increase at the midpoint relative to the 2026-2027 period - Maintains capital allocation guidance: committed to maintaining strong investment-grade credit metrics, investing in growth opportunities that meet double-digit unlevered return targets, growing the dividend at 10% per year, and returning excess capital to shareholders via opportunistic share buybacks

Segment performance

Nuclear Segment: Generated 40 million megawatt-hours of emissions-free power in Q1 2026 with a 92.3% capacity factor. Performance was impacted by more planned refueling outage days than the prior year quarter, but overall operational reliability remained strong. This segment is the core of the company's carbon-free generation portfolio and benefits from the inflation-indexed nuclear production tax credit. Combined Cycle and Cogeneration (Natural Gas) Segment: Generated 23 million megawatt-hours in Q1 2026 with a 47.1% capacity factor, and a forced outage factor of just 5.1% demonstrating strong on-demand reliability. This segment benefits from growing peak demand from data center customers and higher utilization opportunities as large-scale loads come online. Customer Solutions (Retail) Segment: Following the Calpine acquisition, the segment now serves 275 million megawatt-hours of electricity and 800 BCF of natural gas annually to customers across 40 states, over 80% of which are commercial and industrial (C&I) customers including 80% of the Fortune 100. Margin expansion has been driven by three factors: expanding traditional C&I power margins, incremental margins from growing customer demand for carbon-free energy solutions, and the addition of Calpine's retail portfolio which increased the mix of high-value tailored products. Renewable and Storage Development Segment: The company brought two new projects online in Q1 2026: the 105 megawatt Pastoria solar project in California (part of a combined solar and storage project supporting the California Department of Water Resources' carbon neutrality goal) and the 460 megawatt Pin Oak Creek natural gas peaking facility in Texas. The segment has 5,000 megawatts of new capacity in the PJM interconnection queue, including nuclear upgrades, new natural gas generation, and battery storage projects.

Risks & headwinds

- Regulatory uncertainty in PJM around new capacity market rules and co-location requirements for large data center loads has caused some customers to pause contracting decisions, which could near-term revenue growth if clarity is delayed beyond the current expected June timeline - Near-term weak forward power prices in ERCOT, driven by uncertainty over the timing and magnitude of future data center load additions, create near-term pricing volatility, though the company is well-hedged against short-term weakness - Any delay to FERC approval of the CIR transfer for the Crane project could push the timeline for obtaining full 2027 capacity credit and near-term EPS accretion from the project - Option B in PJM's recent white paper on market design, which proposes permanent differential reliability treatment for different loads, carries unresolved legal questions that could create market uncertainty if advanced - Projected load growth in ERCOT and PJM is highly uncertain; slower-than-expected growth or lower-than-expected load additions would pressure long-term power prices and reduce upside from the company's development pipeline

Analyst Q&A

• Q: What explains weak forward power prices in ERCOT despite strong planned data center development activity? /

  A: Weak short-term pricing stems from the fact that most planned data center load has not yet been added to the grid. Currently, the forward market for 2029 and beyond only prices in 10,000 to 15,000 megawatts of new large load, even though over 400,000 megawatts are in the interconnection queue. If 30,000 megawatts of new load is ultimately added, there will be significant upward pressure on long-term prices. Constellation is well hedged against near-term price weakness and views long-term ERCOT power prices as undervalued.

• Q: What is the latest update on the timeline for the Crane project, particularly the possibility of it coming online earlier than the 2031 interconnection date? /

  A: The plant will start operating earlier than 2031; the timeline in question refers to when it will receive full capacity credit. Constellation has filed to transfer CIRs from the Eddystone plant to Crane to enable a 2027 capacity credit, and a FERC response is expected in June-July 2026. The company is actively working with transmission utilities to shorten the interconnection timeline, and PJM has acknowledged the importance of the requested waiver, with a clear path for FERC approval.

• Q: Can bilateral data center deals proceed in PJM before the RBP backstop rule is finalized? /

  A: Nothing prevents bilateral deals from moving forward before rule finalization; some customers are already advancing negotiations, comfortable managing any future regulatory outcome with existing tools. Other customers have chosen to pause to understand final cost implications and available solutions before moving forward. This is a pause, not a full stop, and activity is expected to resume quickly after regulatory clarity is provided.

• Q: What is PJM's current direction on market reform, and what are management's initial reactions to the white paper's paths A, B, and C? /

  A: PJM's white paper acknowledges the need to reform market rules and maintain competitive markets, which is positive. The proposal to co-optimize energy and reserve markets and reflect more value in the energy market (rather than over-relying on capacity markets) aligns with what Constellation has advocated for years. Option B, which calls for permanent differential reliability treatment for different loads, raises unresolved legal questions that require further consideration. Overall, the PJM commission is moving much faster than historical norms to resolve these issues, which is a positive development.

• Q: What is the timeline for accretion from planned nuclear uprate projects, and what is baked into the 2029 guidance? /

  A: Byron and Braidwood are the only nuclear uprates currently in the formal plan. No nuclear upgrade projects are currently projected to contribute EPS accretion in 2029; the earliest any upgrades will add to earnings is 2030.