CMS Energy Earnings: Growth Plan Set to Continue Into 2024 and Beyond

We are reaffirming our $55 fair value estimate for CMS Energy CMS after the company reported third-quarter adjusted EPS of $0.61, up from $0.56 in the third quarter of 2022. Earnings are on track to meet our full-year outlook. 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. Cost savings and other earnings-accretive moves have offset $0.49 per share negative year-over-year impact from mild weather and unusually strong storms.

CMS also introduced 2024 earnings guidance at $3.27-$3.33 per share, in line with our estimate and supporting our 7% annual average earnings growth on a weather-normalized basis through 2025. We expect similar dividend growth.

Key to achieving that growth is regulatory support for its $15.5 billion five-year capital investment plan, which we expect will go higher when management rolls forward its plan early next year. The company’s five-year electric distribution plan filing in September contemplates $7 billion of capital spending, a $3 billion increase from its current plan.

CMS’ large investment plan raises significant regulatory risk. We expect CMS will continue to request annual electric rate increases to incorporate its investment plan and rising costs of capital. Regulatory pushback could slow earnings growth.

An early test will be the outcome of CMS’ request for a revised $169 million electric rate increase based on a 10.25% allowed return on equity, up from its current 9.9% allowed return on equity that was set several years ago when interest rates were much lower. We expect regulators to approve about two thirds of CMS’ request within the next few months.

We also expect CMS to request an increase in gas base rates late this year, including an increase in its 9.9% allowed ROE. We considered its settlement in July that raised rates $95 million a constructive outcome.