CMS Energy Earnings: Plan in Place To Offset Tough First-Half Weather Headwinds

We are reaffirming our $55 fair value estimate for CMS Energy after the company reported second-quarter adjusted EPS of $0.75, up from $0.53 in the second quarter of 2022. Earnings are on track to meet our full-year outlook, despite a large weather-related drag in the first quarter that depressed first-half results. We are reaffirming our narrow moat rating.

CMS management reaffirmed its $3.06-$3.12 EPS guidance range and 6%-8% annual growth target, both in line with our outlook. However, CMS must execute exceptionally well during the second half to hit that range, given the $0.37 EPS year-over-year drag related to warmer-than-normal winter weather during the first half. Warm summer weather and cost savings in the second half should help offset some of that first-half weather drag.

We continue to forecast 7% annual average earnings growth through 2025 based on normal weather and management’s $15.5 billion five-year capital investment plan.

In July, CMS reached a settlement that will raise gas base rates $95 million starting in September and maintain its current 9.9% allowed return on equity. We think this is a constructive outcome and is in line with our forecast.

We also expect a constructive outcome early next year that will raise electric rates to reflect CMS’ investments during the last two years. We think it is unlikely that regulators will approve CMS’ full request for a $216 million rate increase and 10.25% allowed ROE.

During the quarter, CMS closed one of its few remaining coal plants and acquired the 1.2-gigawatt gas-fired Covert plant, both moves that keep CMS on track to reach net-zero carbon emissions at its electric business by 2040.