CMS CMS Energy
Steady Michigan compounder, cheaper after the de-rating, but ordinary allowed returns still don't justify $63.
The story
CMS Energy is a fully regulated Michigan electric and gas utility with a constructive commission, formula-like rate case cadence, and a large multi-year capex plan (grid hardening, coal-to-renewables, possible data-center load) that drives rate-base growth of about 7%. Consolidated ROE of about 11.5% sits above the roughly 9.9% allowed return because of holdco leverage and NorthStar/EnerBank-era mix, and it has been steady rather than a cyclical peak. Leverage is high but typical for a utility, and the equity story depends on funding capex without heavy dilution. The stock has de-rated from 70.51 to 62.77 as investors favor peers with clearer AI-load stories, but it still prices in returns well above cost of equity.
I raised ROE modestly from 10% to 10.5% because consolidated returns have held near 11.5% for years through holdco leverage, but I still anchor near the roughly 9.9% allowed return plus a small premium rather than taking the trailing figure. Book growth of 7% tracks the rate-base capex plan and fades to 4%, below the 5.16% risk-free rate. Beta stays at the 0.55 utility anchor, and default risk stays negligible.
Value drivers
| Return on equity (normalized) | 10.5% |
| Book-value growth (Y1) | 7.0% |
| Terminal book growth | 4.0% |
| Beta | 0.55 |
| Failure probability | 0.5% |
| Cost of equity | 7.6% |
Valuation bridge
| PV of excess returns | 2.23B |
| PV of terminal excess | 5.74B |
| Equity value | 16.81B |
| ÷ shares → per share | $54.41 |
News
bearish -0.30 · 8 articles
- DTE Could Be One of the Quiet Winners of the Data Center Boom
- CMS Energy Stock: Is CMS Underperforming the Utility Sector?
- DTE Is Sitting on an AI-Era Power Opportunity
- Why Is CMS Energy (CMS) Down 6.9% Since Last Earnings Report?
- Peter Thiel’s $418 Million Bet On These 8 Companies Reveals AI’s Biggest Bottleneck
- Why Did APP, CMS, MVIS Stocks Plunge To 52-Week Lows Last Week?
- CMS Energy (CMS) Could Be 11% Undervalued Following Its Preferred Dividend Declaration
- CMS Energy Stock: Is Wall Street Bullish or Bearish?
Projected excess returns on equity
| Yr | Book equity | ROE | Excess return | PV |
|---|---|---|---|---|
| 1 | 8.92B | 10.5% | 255.38M | 237.26M |
| 2 | 9.54B | 10.5% | 273.26M | 235.86M |
| 3 | 10.18B | 10.5% | 291.47M | 233.73M |
| 4 | 10.83B | 10.5% | 309.93M | 230.90M |
| 5 | 11.47B | 10.5% | 328.53M | 227.39M |
| 6 | 12.13B | 10.5% | 347.15M | 223.22M |
| 7 | 12.77B | 10.5% | 365.66M | 218.45M |
| 8 | 13.41B | 10.5% | 383.94M | 213.10M |
| 9 | 14.04B | 10.5% | 401.86M | 207.22M |
| 10 | 14.64B | 10.5% | 419.27M | 200.86M |
Key risks
- A rate-case outcome from the Michigan PSC that cuts the allowed ROE or lengthens regulatory lag
- Equity issuance to fund the capex plan diluting per-share book growth
- A higher-for-longer risk-free rate pushing cost of equity toward or above allowed returns
- Storm and wildfire costs or reliability penalties that can't be recovered
Catalysts
- Signed data-center load contracts that lift the rate-base growth outlook
- Constructive electric and gas rate orders that confirm allowed ROE near 9.9% or higher