US Stocks rallied last Friday, clawing back some of the steep losses seen over the week, as investors got a reprieve from tariff-related headlines.
$Dow Jones(.DJI)$ rose 674.62 points, or 1.65%, $S&P 500(.SPX)$ climbed 2.13% to end at 5,638.94, and $NASDAQ(.IXIC)$ advanced 2.61% to settle at 17,754.09. It was the best day in 2025 for both the S&P 500 and the Nasdaq.
The best-performing concepts is Independent Power Producers & Energy Traders.
Considering the different perceptions of the stock, this time TigerPicks chose $Talen(TLN)$ to have a fundamental highlight to help users understand it better.
$Talen(TLN)$
Talen Energy Corp (TLN) is an independent power producer headquartered in the United States. The company is engaged in the generation and supply of electricity to wholesale customers in various markets. Talen operates a diverse portfolio of power plants that utilize different fuel sources, including nuclear, natural gas, and coal, to provide reliable energy solutions.
Talen has an aggressive commercial strategy with high exposure to future energy prices in the PJM grid (the world's largest competitive wholesale market). As seen in the table below, Talen has locked in or hedged 89% of prices and gross income for 2025 and only 33% for 2026. In June 2024, it had 88% of production hedged and only 38% for 2025. This provides the company with the ability to capture rising electricity prices, if they occur, and exposes gross income to a US$240m gain if prices rise by 10Mwh or a US$220m decline on a US$10Mwh decline for 2026.
However, the 2025 hedges (prices and natural gas costs) look to safeguard cash flow with modest upside on US$5 to US$10Mwh price swings. The PTC (nuclear production tax credits) cushion lower prices. The company has a solid base for its guidance.
Hedges
Hedges
Amazon Co-Location
$Amazon.com(AMZN)$ deal provides US$20-35m in EBITDA for 2025 and is not a significant driver. In 2026, this becomes more important with a US$55-80m impact. The regulatory hurdles that limited the total capacity to 300MW will not be an issue until 2028 when the deal calls for 480MW. I assume that some agreement will be reached between the regulators and Amazon.
AWS Contract
AWS Contract
Financial Estimates
The table below summarizes the key financial estimates for Talen based on consensus data from 8 analysts, many of whom work at top-tier firms such as UBS, Bank of America, and JP Morgan. Given the company hedges for 2025, the consensus is far tighter than for 2026 and 2027, where each analyst's PJM energy price estimates will influence results.
The consensus assumes revenue can expand 7% in 2025 and 21% in 2026, most likely driven by higher prices and a greater contribution from AWS. At the same time, EBITDA margins are expected to increase to over 50% and drive cash earnings (net income, depreciation, and stock-based compensation) higher by 31% on average in the next three years. I assume the company will allocate over US$600m in share buybacks and maintain stable leverage.
Consenus Estimates
Valuation
As is the case with most stock I cover, I use a P/CE (Price to Cash Earnings) multiple in combination with a PEG ratio to reach price targets. The current consensus price target for YE25 of US$264 backs into a P/CE target of 22x that seems high in absolute terms, but on a relative or PEG basis is considered cheap at 0.7x. Applying this 0.7 PEG to YE26 estimates, I arrive at a US$387 price target that provides over 100% upside potential. Talen has great assets and is an acquisition target for $Constellation Energy Corp(CEG)$ $Vistra Energy Corp.(VST)$, private equity, or even a hyperscaler.
Valuation
Risk
The DeepSeek and now President Trump's Tariffs events highlight TLN's share price volatility. On the fundamental side, the main risk is regulatory, where power plants may be forced to back up the grid without adequate compensation. Finally, energy demand may be far more timid, reducing prices and potential results.
Conclusion
I rate TLN a Buy. The company's power generation assets and commercial strategy should allow it to greatly leverage higher energy prices driven by climate change, electrification, and data center demand.
Stock Price Forecast:
Here are the target price forecasts for the next 12 months from analysts.
Based on 8 Wall Street analysts offering 12 month price targets for Talen Energy Corp in the last 3 months. The average price target is $258.88 with a high forecast of $295.00 and a low forecast of $200.00. The average price target represents a 26.33% change from the last price of $204.93.
Resource:
https://seekingalpha.com/article/4767553-talen-energy-exaggerated-fears-provides-upside
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