Alphabet Inc. Class C 3.59GW nuclear power deal finalized; Goldman Sachs Group, Inc. maintains Constellation Energy (CEG.US) "Neutral" with a $305 price target.

Goldman Sachs Group, Inc. released a research report on October 6, 2026, focusing on the power purchase agreement (PPA) signed between Constellation Energy (CEG.US) and Alphabet Inc. Class C (GOOGL.US) for approximately 3.59GW of nuclear power. Goldman Sachs Group, Inc. maintained its "Neutral" rating on Constellation Energy with a 12-month price target of $305, implying 14% potential upside. The agreement with Alphabet Inc. Class C consists of two parts, with all power delivered to the PJM grid. The first part is a 20-year PPA covering uprates and capacity additions totaling 890MW across 11 nuclear units in Illinois, Pennsylvania, and New Jersey. The first batch of incremental power is expected to come online in 2028. This project will drive over $4.3 billion in capital investment for Constellation Energy, part of which was already planned and not entirely incremental. The second part is a 15-year purchase contract locking in 2,700MW of Constellation Energy's existing nuclear capacity in the PJM region, safeguarding the economics of existing nuclear units. The contract also incorporates a flexible demand adjustment mechanism that allows non-core loads to be curtailed during periods of grid stress. The two parties also plan to expand cooperation nationwide in Clean Energy Fuels Corp., energy storage, and demand response. Constellation Energy will also deploy the Gemini tool to optimize generation dispatch and infrastructure protection. The report did not disclose the specific power price for this transaction. Analysts conducted a sensitivity analysis based on the company's public estimates: every 1GW of nuclear PPA generates $125-325 million in incremental FCFbG. On this basis, the 3.59GW contract will bring $449-1,167 million in FCFbG uplift for Constellation Energy, accounting for 5%-14% of Goldman Sachs Group, Inc.'s 2030 FCFbG forecast. This signing raises the PPA-locked share of Constellation Energy's nuclear capacity from 13% to 28%, with the newly signed volume in a single week accounting for approximately 19% of its total nuclear capacity. In cross-peer comparison, Talen Energy (TLN.US) and Vistra Energy (VST.US) have nuclear PPA signing ratios of 86% and 52%, respectively. Although Constellation Energy's signing ratio remains relatively low, it owns the largest volume of uncontracted nuclear assets in the industry. Amid high policy uncertainty in the PJM region and widespread market skepticism about the feasibility of PPA execution, this large-scale contract is positive for Constellation Energy and the entire independent power producer (IPP) sector, and is expected to help restore market sentiment for the sector. However, Goldman Sachs Group, Inc. still maintained its Neutral rating, primarily because Constellation Energy's valuation attractiveness is limited compared with peer IPPs. Key items to watch going forward include third-quarter earnings, the October 12 PJM market RBP process, and the IRAS ruling. If there is no negative policy shock, this transaction may initiate a sustained re-rating of the company's valuation. The report highlights three core risks: regulatory and grid interconnection risk, power price volatility, and data center power demand falling short of expectations. On valuation, a hybrid valuation method combining P/E and free cash flow yield is used, with the price target corresponding to 21x P/E and a 5% free cash flow yield. On the financial forecast level, Constellation Energy's revenue, EBITDA, and EPS are generally expected to trend upward from 2025 to 2028. Revenue and EBITDA will see a phase of high growth in 2026, rising 41.9% and 67.4% year over year, respectively, followed by some moderation. In 2028, EBITDA returns to a high growth rate of 19%, and diluted EPS rises to $17.09. Free cash flow will improve significantly in 2027-2028. On leverage, net debt/EBITDA will temporarily rise to 2.7x in 2026 due to capital expenditures, followed by continued deleveraging over the next two years. Dividends maintain steady growth of 10% per year.