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On Thursday, Barclays (LON:BARC) analyst Nicholas Campanella upgraded CMS Energy (NYSE:CMS) stock from Equalweight to Overweight and increased the price target to $75.00 from $68.00. The revision was based on anticipated upside opportunities for the company, particularly from energy efficiency initiatives and state-wide renewable energy investments. Currently trading at $70.15, CMS Energy has shown strong momentum with a 27% return over the past year. According to InvestingPro data, the stock is trading near its 52-week high of $72.40, with analyst targets ranging from $59 to $78.
Campanella noted that CMS Energy could potentially over-earn the allowed return on equity (ROE) by approximately 100 basis points on the electric side and 50 basis points on the gas side due to these initiatives. In his analysis, he expects an approximate $60 million per year of upside to earnings, assuming about 40 basis points of over-earning in 2025 and around 50 basis points annually from 2026 to 2030 for a conservative estimate. The company, with a market capitalization of $20.94 billion, has demonstrated consistent profitability with a return on equity of 13% over the last twelve months. InvestingPro analysis reveals 7 additional key insights about CMS Energy’s financial health and growth potential.
The analyst also highlighted the potential earnings growth from Michigan’s renewable energy initiatives, which could add about 7 cents per year to earnings. This growth could increase as the Renewable Energy Plan (REP) is implemented. The REP includes a mechanism for recovery of some capital investments outside of rate cases, which could serve as a significant catalyst for the company.
Furthermore, CMS Energy has the opportunity to earn on Power Purchase Agreement (PPA) Full Capacity Market (FCM) as part of the REP. Campanella suggested that this could represent a step change for the company, with announcements of such deals expected after an order for the REP is announced by September 15.
The analyst concluded that these factors indicate a potentially constructive regulatory environment in Michigan that could lead to upward pressure on earnings if fully realized. The positive outlook reflects Barclays’ expectation that these initiatives could support CMS Energy’s long-term earnings per share (EPS) compound annual growth rate (CAGR) guidance, which is currently between 6-8%, with a bias towards the higher end of that range.
In other recent news, CMS Energy reported fourth-quarter earnings that aligned with analyst expectations, posting an adjusted earnings per share of $0.87. However, the company’s revenue for the quarter fell short, coming in at $1.99 billion compared to the estimated $2.11 billion. Despite this, CMS Energy has raised its earnings guidance for fiscal year 2025 to a range of $3.54 to $3.60 per share, slightly above previous projections. Additionally, the company announced an increase in its quarterly dividend to 54.25 cents per share, up from 51.50 cents, translating to an annual dividend of $2.17 per share. This marks the 19th consecutive year of dividend increases for CMS Energy, reflecting its commitment to returning value to shareholders. Furthermore, the company highlighted operational improvements, such as restoring power to over 93% of customers in under 24 hours. CEO Garrick Rochow noted the addition of over 360 megawatts of new load through economic development efforts. CMS Energy also reaffirmed its long-term adjusted EPS growth target of 6% to 8%, with confidence towards the higher end of this range.
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