BMO Capital Markets has maintained an Outperform rating on CMS Energy (NYSE: NYSE:CMS) and increased the stock's price target to $76.00 from the previous $69.00.
The adjustment comes after recent filings in the company's electric rate case. Intervenors, including the Michigan Public Service Commission (MPSC) staff and the Michigan Attorney General, submitted their testimonies last Friday, which BMO Capital views as consistent with expectations.
The staff's initial position suggests a revenue requirement of approximately $148.3 million, about 49% of CMS Energy's requested $302.6 million, excluding surcharges.
The MPSC staff's recommendation includes a return on equity (ROE) of 9.85%, a 49.92% equity layer, and a slightly lower rate base of around $14.8 billion, which is a 5% decrease compared to CMS's proposed figures.
CMS Energy had requested a 10.25% ROE, a 50.75% equity layer, and a jurisdictional rate base of approximately $15.6 billion. The last authorized figures for the company were a 9.90% ROE and a 50.02% equity layer.
BMO Capital's decision to raise the price target reflects their ongoing confidence in CMS Energy, as indicated by their maintained Outperform rating. The firm's updated mark-to-market (MTM) and sum-of-the-parts (SOTP) analysis have led to the new target price of $76.00 for the utility company's shares.
CMS Energy reported robust second-quarter financial results, underlining the supportive regulatory environment in Michigan and a focus on customer affordability.
The company saw an increase in adjusted earnings per share for the first half of the year to $1.63, up $0.18 from the same period last year, and has reaffirmed its full-year earnings guidance of $3.29 to $3.35 per share.
A significant operational update includes the progression of a 230-megawatt data center project, expected to be completed by 2026. CMS Energy also highlighted a settled gas rate case that includes $62.5 million of effective rate relief, with the next gas rate case planned for December.
The company is also planning to file a 20-year renewable energy plan in November. Executives have expressed confidence in the company's financial performance and growth prospects, particularly in renewable energy and data centers.
As a part of the company's financial strategy, CMS Energy anticipates issuing $675 million in debt in the latter half of the year to rebalance its capital structure. The company maintains a long-term outlook of 6% to 8% adjusted EPS growth.
InvestingPro Insights
CMS Energy's financial metrics and recent market performance align with BMO Capital's optimistic outlook. According to InvestingPro data, CMS Energy has a market capitalization of $21.04 billion and is trading near its 52-week high, with the current price at 99.17% of that peak. This strong performance is reflected in the company's impressive 37.22% total return over the past year.
InvestingPro Tips highlight CMS Energy's consistent dividend history, having raised its dividend for 17 consecutive years and maintained payments for 18 years. This track record of stable returns to shareholders could be particularly appealing to income-focused investors in the utility sector. The current dividend yield stands at 2.92%, with a 5.64% dividend growth rate over the last twelve months.
The company's P/E ratio of 21.69 and adjusted P/E of 25.18 for the last twelve months suggest that investors are willing to pay a premium for CMS Energy's earnings, possibly due to its stable business model and growth prospects. This valuation aligns with BMO Capital's increased price target and Outperform rating.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights, with 10 more tips available for CMS Energy on the platform.
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