3. Talen Energy Corp. (NASDAQ:TLN)
Number of Hedge Fund Holders: 77
Talen Energy Corp. (NASDAQ:TLN) is an independent power producer and infrastructure company that produces and sells electricity, capacity, and ancillary services into wholesale power markets in the US. The company operates nuclear, fossil, oil, natural gas, and coal power plants, and owns and operates ~10.7 GW of power infrastructure.
Talen’s growth is fueled by its data center power supply segment, most notably through its contract with Amazon Web Services/AWS at its Susquehanna site. The contract involves the delivery of power to the company’s Susquehanna campus, which has now been electrified and is generating revenue. The initial phase of this agreement is a 300-megawatt Interconnection Service Agreement/ISA, and Talen is pursuing opportunities to expand beyond this capacity to meet AWS’s increasing needs.
BofA raised the price target on Talen to $255 from $247 and kept a Buy rating on May 5. This adjustment followed the firm’s updated EBITDA estimates and removed its prior 5% discount from the base business. This was due to the favorable political environment for coal, the collar on the next two capacity auctions, and the inclusion of Susquehanna’s base generation in this segment.
River Road Mid Cap Value Fund highlighted Talen as a top contributor to the firm and stated the following regarding Talen Energy Corporation (NASDAQ:TLN) in its Q4 2024 investor letter:
“Another top contributor was Talen Energy Corporation (NASDAQ:TLN), a leading independent power producer. TLN boasts a diverse 10.7 GW generation portfolio spanning nuclear (48%), natural gas (41%), and coal (11%) assets across the PJM (northeastern states) and WECC (western regions). The electrical grid faces mounting pressure from rapidly escalating demand, fueled by transformative technologies like artificial intelligence (AI). Consequently, the price of clean and reliable nuclear power is expected to increase significantly. TLN’s crown jewel, the Susquehanna nuclear facility, enjoys dual advantages: a tax credit safeguarding its cash flow downside and upside cash flow potential as power prices respond to new agreements. These benefits are exemplified by TLN’s recent contract with Amazon® and Constellation Energy Group’s (CEG) plans to reactivate Three Mile Island to meet Microsoft’s® demand.
This strategic positioning drove several powerful catalysts in the quarter despite the Federal Energy Regulatory Commission’s (FERC’s) rejection of the ISA amendment for increased Amazon Web Services (AWS) power capacity. The company demonstrated strong shareholder commitment by executing an additional $1B buyback, bringing total repurchases to 20% of shares in 2024, with $1.0B still authorized through 2026. The stock benefited from substantial passive fund demand, with over six million shares acquired in September alone following inclusion in five equity indices. Most importantly, the underlying business fundamentals remained robust, with expanded spark spreads driving increased generation margins across the fleet, while maintaining a conservative leverage ratio of 2.4x, well below the 3.5x target. The market particularly responded to the growing narrative around data center power demand, which is expected to surge from 25 gigawatts in 2024 to more than 80 gigawatts by 2030, positioning Talen’s existing generation capacity as increasingly valuable in a market facing significant supply constraints. We trimmed the position as it approached its assessed value.”
