CMS Energy
A regulated tollbooth compounding on Michigan’s clean‑energy buildout
CMS Energy’s core utility, Consumers Energy, is a state‑regulated monopoly serving 1.9 million electric and 1.8 million gas customers in Michigan.
The company is executing a multi‑year plan to harden the grid, retire coal by 2025, and add renewables and storage, under a constructive regulatory framework that has recently authorized 9.9 percent ROE for electric and 9.8 percent ROE for gas together with sizable rate relief.
Management guides to 6 to 8 percent adjusted EPS growth and has delivered steady results, aided by prudently structured trackers that pass through fuel and purchased power costs.
Financially, CMS is typical for a regulated utility: leverage is elevated but supported by investment‑grade ratings across agencies and strong cash generation at the operating level.
TTM non‑GAAP EBITDA to 9/30/25 was about 3.33 billion against consolidated debt of ~18.07 billion and unrestricted cash of ~0.36 billion, implying net debt near 17.7 billion and EBITDA interest coverage of roughly 4.3x.
The five‑year customer investment plan totals about 20 billion from 2025 through 2029 with an expected rate base CAGR of about 8.5 percent, creating a long runway for rate‑base driven earnings growth. A new tariff framework for 100 MW‑plus data centers adds a potential upside flywheel while protecting existing customers from cross‑subsidy risk.
Does CMS Energy have a strong competitive moat?
Consumers Energy enjoys a state‑sanctioned monopoly in its service territory, protected by regulation and the massive capital required to replicate networks.
Component view and weights: Efficient scale 90 (50 percent weight) given the natural‑monopoly grid and gas network that would be uneconomic to duplicate; Intangibles/regulatory 80 (25 percent) reflecting a constructive but scrutinizing MPSC, forward‑looking test years, and proven recovery mechanisms; Switching costs 70 (15 percent) as customers cannot practically switch delivery providers though retail choice exists at the margin for generation; Cost advantage 65 (10 percent) due to economies of scale in procurement and system operations; Network effects 20 (0 percent weight for utilities).
Weighted result approximates mid‑80s. Moat durability is underpinned by long‑dated rate‑base growth to ~39.4 billion by 2029 and coal retirement by 2025, yet can erode if regulators materially lower allowed returns or if policy sharply limits cost recovery.
Does CMS Energy have pricing power in its industry?
Pricing is set by the MPSC through rate cases, not by market discretion. CMS has demonstrated the ability to earn near its authorized returns, but the Commission trimmed requests meaningfully: a 153.8 million electric order at 9.9 percent ROE and a 157.5 million gas order at 9.8 percent ROE were both materially below initial asks.
Trackers for fuel and purchased power and forward‑looking test years support recovery of prudently incurred costs, which provides a form of regulated pricing power. Latent upside exists as load from data centers and industrial projects scales under the new large‑load tariff, though political pressure around affordability is a constraint.
How predictable is CMS Energy's business?
Revenue and earnings are predominantly regulated and recurring.
The company reaffirmed a long‑term 6 to 8 percent adjusted EPS growth algorithm and raised 2025 guidance to 3.56 to 3.60 per share after reporting first‑nine‑months 2025 adjusted EPS of 2.66. TTM adjusted EPS through Q3‑25 is about 3.53 using Q4‑24 plus Q1‑Q3‑25. Rate‑base investment, reliability spending, and incentive constructs (e.g., FCM and EWR) add visibility.
Risks to predictability include weather volatility, storm costs, and timing of regulatory rulings, partly mitigated by deferrals and trackers.
Is CMS Energy financially strong?
Balance sheet is typical for a capex‑heavy utility. As of 9/30/25, consolidated debt was ~18.07 billion with unrestricted cash ~0.36 billion; TTM non‑GAAP EBITDA was ~3.33 billion, implying net debt/EBITDA roughly 5.3x and EBITDA interest coverage about 4.3x on reported net interest of ~0.77 billion.
Consumers’ regulated common equity ratio hovers around 41 percent, supporting ratings. Parent and subsidiary maintain investment‑grade profiles; November 2025 investor materials show CMS at BBB/Baa2/BBB and Consumers Energy senior secured at A/A1/A+ with stable outlooks.
The November 2025 issuance of 850 million 3.125 percent convertible notes partially refinances maturities but introduces modest potential dilution. Overall liquidity and regulatory support are adequate to fund the 20 billion plan.
How effective is CMS Energy's capital allocation strategy?
Capital is directed primarily to regulated rate‑base projects with attractive, policy‑aligned returns: 20 billion planned for 2025‑2029, skewed to electric reliability, clean generation, and gas safety programs.
Dividend policy targets roughly a 60 percent payout and the board lifted the annual dividend to 2.17 in 2025 for the 19th consecutive increase. Share count rose to 304.3 million by Q3‑25 from 298.8 million at year‑end 2024, reflecting routine equity issuance and the infrastructure build.
The 2031 convertible notes were upsized, lowering immediate cash cost of capital but adding potential dilution at an initial conversion price near 90.6. M&A has been limited and disciplined. We view allocation as sound for a regulated compounding model, while monitoring equity needs and dilution versus growth.
Does CMS Energy have high-quality management?
CEO Garrick Rochow and CFO Rejji Hayes have sustained a long record of meeting or exceeding guidance and securing constructive regulatory outcomes. The 2025 materials highlight two decades of industry‑leading financial consistency, and 2024 marked the 22nd consecutive year of strong financial results alongside continued dividend growth.
Management has proactively addressed reliability through the 10‑year roadmap and achieved measurable improvements in restoration times in 2024. We view leadership as execution‑focused with credible regulator relationships, though ownership is institutional rather than founder‑led.
Is CMS Energy a quality company?
CMS Energy is a good quality company with a quality score of 78/100
- Durable regulated monopoly with efficient scale and visible rate‑base growth to ~39.4 billion by 2029 under Michigan’s supportive statutes and trackers.
- Recent MPSC orders: electric revenue increase of about 154 million at 9.9 percent ROE and gas increase of about 157.5 million at 9.8 percent ROE demonstrate constructive outcomes yet disciplined oversight.
- Data center tariff approved for 100 MW‑plus loads with long‑term contracts and minimum billing demand should convert load growth into shareholder value without shifting risk to legacy customers.
- Balance sheet supports plan: consolidated TTM EBITDA ~3.33 billion vs. ~18.07 billion debt and stable BBB/Baa‑level parent ratings and A/A1/A+ subsidiary secured ratings.
- Coal exit by 2025 and large renewables pipeline align with state policy and can unlock FCM and EWR incentives while improving emissions profile and O&M risk.
What is the fair value of CMS Energy stock?
Is CMS Energy a good investment at $72?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.