On Friday, Guggenheim upgraded CMS Energy (NYSE:CMS), listed on the New York Stock Exchange under NYSE:CMS, from Neutral to Buy and increased the price target to $64 from the previous $60. This adjustment comes after CMS Energy reported a full-year earnings per share (EPS) beat for 2023, raised its guidance for 2024, and announced an increase in capital expenditures.
The firm's decision to upgrade is based on several factors, including CMS Energy's performance and growth potential. The analyst noted that while previously viewed as a company with a 6-8% EPS growth rate, CMS Energy is now seen as an 8% grower. This is attributed to near-term accretion and potential rebase opportunities stemming from Michigan's energy legislation.
CMS Energy's growth prospects are further supported by the potential to double its current 8 gigawatt plan under the new Michigan Renewable Portfolio Standard (RPS). The company also benefits from a change in Moody’s methodology, which provides CMS with approximately $550 million of additional investment capacity, equating to about 3% of its market capitalization.
The upgrade reflects the belief that CMS Energy's incremental capital expenditures can be financed with equity ratios well below 50%, which is considered favorable compared to its peers. The analyst anticipates these advantages to gradually become apparent, with regulatory filings ongoing and expected to continue into the second half of 2024.
Guggenheim's analysis suggests that CMS Energy's earnings power could be further bolstered in the long term through additional capital expenditure opportunities, investments related to the energy law, and contracts not currently in the plan. The firm sees CMS Energy as crossing the risk/reward threshold, justifying the new Buy rating and higher price target.
InvestingPro Insights
InvestingPro data and analysis provide deeper insights into CMS Energy's financial health and stock performance. With a market capitalization of $17.17 billion, CMS Energy operates with a significant debt burden, which is a critical factor for investors to consider. Nonetheless, the company's consistent commitment to shareholder returns is evident, as it has raised its dividend for 17 consecutive years, currently offering a dividend yield of 3.31%. This dedication to dividend growth, which has been at a rate of 5.98% over the last twelve months as of Q4 2023, is a testament to its financial stability and management's confidence in the company's cash flow.
Despite a recent dip in revenue, with a -13.19% change over the last twelve months as of Q4 2023, CMS Energy's stock has shown resilience in terms of price stability, generally trading with low volatility. This could be an attractive quality for risk-averse investors. Moreover, analysts have revised their earnings upwards for the upcoming period, indicating a positive outlook on the company's profitability, which has been confirmed over the last twelve months.
InvestingPro Tips highlight that while CMS Energy is trading at a high P/E ratio of 19.01, which suggests a premium relative to near-term earnings growth, the company's solid track record in maintaining dividend payments for 18 consecutive years and liquid assets exceeding short-term obligations provide a measure of security for investors. Additionally, with a PEG ratio of 3.58, there may be opportunities for growth that are not fully reflected in the P/E alone.
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