Reinstate Coverage and Downgrade to Hold: Taking A Breather After A Robust Run

Research evidence excerpt

Reinstate Coverage and Downgrade to Hold: Taking A Breather After A Robust Run

Talen still has ~40% capacity revenue as a percentage of EBITDA in 2030. Investor consensus

for the procurement has been 6-7GW, consistent with the most recent auction's shortfall, vs.

PJM's project shortfall of 9GWs. While the new resources will naturally take time to be build

and come on-line (YE2030 realistically), this could adversely impact energy prices as well, an

underappreciated element. Potential reforms to PJM capacity market construct discussed in

the white paper released in April 2026, could lead to lower capacity prices versus the cap over

time. Most dedicated power investors we speak to are normalizing their 2028-2029 estimates used in

valuation to incorporate $100-200/MW-day long-term capacity prices.

Less clear consolidation path between lower contracted cash flow stream and market power•

growth for peers. Industry consolidation was more readily apparent before Constellation, Vistra,

NRG Energy, and Talen each purchased large portfolios. Market power concentration is now

more real of a factor. TLN's ~$15Bn market cap is still relatively modest; however, the assets are

well run with low-cost structures that direct plant synergies less apparent. Many investors have

focused on the senior management team and broadly concentrated ownership as indicative of

a consolidation thesis.

Vistra and NRG have become more appealing. From a relative perspective, the outlooks for•

Vistra (value) and NRG (growth) are more compelling to us today. We Talen as more fairly valued

today after shares rallied +$100/sh since June 10th without incremental data center deals. In

contrast, we view peer Vistra as undervalued in a scenario without future data center transactions.