CMS 能源

CMS Energy filed its 25-year integrated resource plan on Sept. 3, detailing plans to add large amounts of renewable energy, battery storage, and natural gas generation to replace retiring units and meet demand growth.

Why it matters: The IRP includes 15.8 gigawatts of new clean energy resources, about two-thirds of which regulators approved in CMS' most recent renewable energy plan. This keeps CMS on track to meet Michigan's 100% clean energy target by 2040. The IRP supports about $27 billion of new generation investment, only a small portion of which is in management's five-year, $24 billion companywide plan. We assume at least 7% annual earnings growth through 2028, in line with management's 6%-8% target.

The bottom line: We are reaffirming our $68 per share fair value estimate and narrow Morningstar Economic Moat Rating for CMS Energy. CMS' stock trades in line with our fair value estimate as of Sept. 4. Our 2026 EPS estimate is in line with management's $3.83-$3.90 EPS guidance range. Our 2027 EPS estimate is in line with management's $4.08-$4.17 EPS guidance range.

Big picture: The IRP assumes at least 3% annual electricity demand growth, a step up from CMS' current outlook. The 4.1 GW of planned new battery storage should help optimize Michigan's renewable energy capacity, potentially attracting large customers such as data centers that want a consistent, emissions-free energy source. Management's plan to shrink Northstar allows CMS to allocate the bulk of its capital investment to the utility.

Coming up: Michigan regulators have 12 months to rule on the IRP proposal, but we expect CMS to pursue a settlement before then. CMS settled its last two IRP filings in 2018 and 2021. Regulators are set to rule in mid-October on CMS' $232 million gas rate increase request and by next spring on CMS' $456 million electric rate increase request. We expect regulators to approve about 70% of CMS' requests, consistent with recent outcomes.

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Our fair value estimate is $68 per share.

We forecast 7% average annual earnings growth at least through 2028, in line with management's 6%-8% annual growth target. Securing new large-load customers in the coming years could push earnings growth toward 8% beyond 2028.

We assume $14 billion of capital investment in 2026-28, an annual runrate in line with management's most recent investment plan. We expect management will continue adding to its capital investment plan as regulators approve electric distribution and clean energy projects in 2028 and beyond to improve reliability and meet Michigan's clean energy targets.

We assume Michigan regulators continue to set customer rates based on allowed returns on equity in line with the sector average.

We expect CMS to maintain its parent leverage, which results in CMS earning consolidated returns on equity above its regulated utility allowed return on equity.

In our discounted cash flow valuation, we use a 5.9% cost of capital based on a 7.0% cost of equity. This is lower than the 9% rate of return we expect investors will demand of a diversified equity portfolio, reflecting CMS’ lesser sensitivity to the economic cycle and lower degree of operating leverage.

We assign CMS a narrow moat rating.

Service territory monopolies and efficient scale advantages are the primary moat sources for regulated utilities like CMS.

State and federal regulators grant CMS exclusive rights to charge customers rates that allow it to earn a fair return on and return of the capital it invests to build, operate, and maintain its generation, transmission, and distribution electricity and gas networks. In exchange for CMS' service territory monopoly, regulators set returns at levels that aim to minimize customer costs while offering fair returns for capital providers.

We project CMS will earn a consistent spread over its cost of capital for the foreseeable future. CMS' regulated utilities have realized a string of mostly constructive rate outcomes. Legislation and political turnover during the last decade have helped turn the regulatory environment in Michigan from below average to above average.

We think CMS will continue to get political and regulatory support from Michigan regulators to expand its investment in renewable energy, carbon emissions reductions, and reliability based on state policies. This should continue producing opportunities for value-accretive investment.

Michigan is among the states making a big push to decarbonize its economy by emphasizing natural gas and renewable energy in its energy mix. The state is embarking on a plan to reach 100% clean energy by 2040. This gives CMS' investments regulatory and political backing to ensure stable earned returns on new investments.

CMS' nonutility business, Northstar, could shrink to less than 5% of consolidated earnings following its planned divestments announced in 2026 and does not have a material impact on our moat rating.

Utility regulation in Michigan has improved since landmark reforms in 2008 and 2016. Support from policymakers and regulators is critical to producing earnings and dividend growth.

CMS' focus on investment in its rate-regulated utilities has led to a healthier balance sheet and more reliable cash flow.

CMS' board has more than doubled the dividend since 2011. We expect 5% annual dividend increases going forward, slightly below our earnings-growth rate outlook.

CMS' large investment growth plan raises regulatory and project execution risk.

CMS will make frequent requests for gas and electric customer rate increases. This can be a risky strategy, as regulators could suffer from rate fatigue.

Rising interest rates could raise financing costs for CMS and make its dividend yield less attractive for income investors.