CMS Energy Corporation

CMS Energy Corporation

(CMS - NYSE)

$46.44

Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.

Reason for Report: Flash Update: 1Q18 Earnings Results

Prev. Ed: 4Q17 Earnings Update on Mar 27, 2018.

Flash Update[Note: earnings update in progress; final report to follow]

On Apr 26, 2018 CMS Energy Corporationreported first-quarter 2018 adjusted earnings per share of 86 cents, beating the Zacks Consensus Estimate of 82 cents. Quarterly earnings were up 21.12% from the year-ago quarter’s figure of 71 cents.

The improvement can be attributed to favorable weather conditions and cost-saving strategies.

Operational Performance

CMS Energy’s operating revenues came in at $1,953 million, which surpassed the Zacks Consensus Estimate of $1,829 million by 6.8%. Moreover, revenues rose 6.8% on a year-over-year basis.

The company’s operating expenses were up 10.3% year over year to $1,590 million.

In first-quarter 2018, operating income was $363 million, down 6.4% from $388 million in the year-ago quarter.

CMS Energy’s interest charges rose 3.7% to $111 million, compared with $107 million in the year-ago quarter.

Financial Condition

CMS Energy had cash and cash equivalents of $195 million as of Mar 31, 2018, up from $182 million as of Dec 31, 2017.

As of Mar 31, 2018, total debt, capital leases and financing obligations were $10,066 million, down from $10,185 million as of Dec 31, 2017.

Net cash from operating activities was $708 million as of Mar 31, 2018, compared with $646 million as of Dec 31, 2017.

Guidance

CMS Energy reaffirmed its guidance for 2018 adjusted earnings at $2.30-$2.34 per share.

MORE DETAILS WILL COME IN THE IMMINENT EDITIONS OF ZACKS RD REPORTS ON CMS.

Portfolio Manager Executive Summary[Note: Only highlighted material has been changed.]

Michigan-based, CMS Energy Corporation is a company primarily engaged in the generation, purchase, storage, distribution and sale of electricity and natural gas. The company is primarily focused on its principal subsidiary, Consumers Energy, an electric and natural gas utility. With its subsidiary CMS Enterprises, CMS Energy is also engaged in independent power generation in several other states.

Of the ninefirms covering the stock, fiveprovided positiveratings and four assigned neutral ratings on the stock. Notably, none of the firms were negative on CMS Energy.The average Zacks Digest price target is $48.56($0.68 from the previous report and approximately 14.2% up from the current price). The price target ranges from $45.00 (5.9% upside from the current price) to $52.00 (22.2% upside from the current price).

Positive or equivalent (55.6%; 5/9 firms): The bullish firms remained upbeat about CMS Energy’s above average annual EPS growth outlook along with Michigan’s constructive regulatory environment. The firms believe that Michigan’s desire to boost job creation will provide strong political and regulatory support for the company’s regulated-centric strategy. Moreover, they appreciated the company’s infrastructural upgrade program, which they believe will last long into the next decade.

Neutral or equivalent (44.4%; 4/9 firms):For the neutral firms, CMS Energy delivered in-line fourth-quarter 2017 earnings when compared to their estimates. They remain impressed by the company’s above average earnings growth profile and management’s ability to consistently meet or exceed its financial targets. However, they are concerned about the fact that the company trades at a premium in terms of its P/E multiple, compared to its peers, thereby making CMS Energy a dearer stock.

Mar 28, 2018

Overview[Note: Only highlighted material has been changed.]

Key investment considerations as identified by the analysts are as follows:

• CMS Energy’s regulated electric power operations in Michigan generate a relatively stable and growing earnings stream.
• The company presents a strong growth story given its solid balance sheet and incremental dividend.
• With its robust pipeline of regulated investment opportunities, the improving economic condition of Michigan and the favorable regulatory treatment, the company remains on track to achieve its long-term growth target.
• Cost savings is a key driver of increasing margins.
• Tax reform is expected to drive the company’s bottom line.
• CMS Energy’s increased capital expenditure will support its expansion plan which includes solar operations at site like Grand Valley State University, Western Michigan University and a location in the Lansing area, which is presently under consideration.

• Adverse decisions in pending regulatory cases may negatively impact CMS Energy’s earnings. Profitability at regulated utilities depends upon rate relief at regular intervals in Michigan, the company’s service area.
• The company’s earnings are highly sensitive to laws and regulations of the state and federal government.
• The company also faces financialand economic cycle risks. Any change in weather patterns may challenge the company’s earnings growth substantially.
• The company is susceptible to changes in commodity prices. Any unfavorable movement in commodity prices will adversely impact the company’s financials.

CMS Energy Corporation is an energy company operating primarily in Michigan. It is the parent holding company of several subsidiaries, including Consumers Energy, an electric and gas utility, and CMS Enterprises, primarily a domestic independent power producer (IPP).

The company operates in three segments–Consumers’ electric utility operations include the generation, purchase, distribution and sale of electricity.

Consumers' gas utility operations include the purchase, transmission, storage, distribution and sale of natural gas. Consumers Energy’s customer base consists of a mix of residential, commercial and diversified industrial customers.

CMS Enterprises, through its subsidiaries and equity investments, owns power generation facilities fueled mostly by natural gas and biomass.

CMS Energy and Consumers manage their businesses by the nature of services each provides. CMS Energy operates principally in three business segments: electric utility, gas utility, and enterprises, its non-utility investments and operations. Consumers Energy operates principally in two business segments: electric utility and gas utility.

The company’s fiscal year coincides with the calendar year. For more information on the company, please visit

Mar 28, 2018

Long-Term Growth[Note: Only highlighted material has been changed.]

CMS Energy continues to focus on investing in Consumers Energy’s utility system, growing earnings and operating cash flow, while controlling operating and fuel costs. Consumers’ balanced energy initiative is a comprehensive energy resource plan designed to meet its projected short-term and long-term electric power requirements through energy efficiency, demand management, expanded use of renewable energy, development of new power plants and pursuit of additional power purchase agreements to complement the existing generating sources, and potential retirement of older generating units. In addition, the gradually improving Michigan economy withincreasing building permits, decreasing unemployment rate and higher scope for industrial sales is expected to drive utility demand.

CMS Energy continues to upgrade its existing infrastructure, along withboosting its portfolio. To this end, the company purchased the Jackson generating station and also acquired new wind farms, thereby strengthening the asset base and boosting its capacity mix.

Going forward, Consumers will continue to invest in renewable generation and energy waste reduction programs in order to meet the requirements set by the 2016 Energy Law and to fulfill customer demand beyond the renewable energy standard. CMS Energy will also continue to pursue further opportunities for the development of renewable generation projects through its non-utility businesses.

Consumers projects that its total electric deliveries will remain stable or increase slightly through 2022 and that its gas deliveries will remain stable in 2018 and increase moderately through 2022. This outlook reflects growth in electric demand offset partially by energy waste reduction programs, and growth in gas demand offset partially by energy efficiency and conservation.

Over the next five years, the company expects to make substantial capital investments. CMS Energy’s 5-year plan includes $10.6 billion of needed capital investment projects to strengthen and improve customer service, including upgrading gas and electric infrastructure, and making renewable energy investments. The gas infrastructure projects comprise $4.9 billion to sustain deliverability and enhance pipeline integrity and safety. The electric distribution projects comprise $5.2 billion to strengthen circuits and substations and replace poles. Other capital expenditures accounts for $0.5 billion.

As part of the program, management has undertaken steps like the introduction of smart meters, replacing gas infrastructure, gas compression upgrades, expansion of gas plants and focus on clean energy.

Overall, according to the firms, the company has a balanced portfolio of energy resources to meet the needs of its customers. The firms also believe that management’s commitment to meet energy policy goals, infrastructure investment, unique reinvestment strategy, cost control initiatives and proper execution of the business strategies will result in higher top-line growth for the company in the long term.

Mar 28, 2018

Target Price/Valuation[Note: Only highlighted material has been changed.]

Key risks to the price target include economic weaknesses, higher interest rates, higher fuel expenses, unfavorable weather conditions, unusual load growth trends, and changes in regulatory structure. Additionally, it includes the company's ability to obtain timely and adequate rate relief, meet current and future environmental standards, maintain reliability and continue to be profitable in its scaled-down, non-utility businesses.

Recent Events[Note: Only highlighted material has been changed.]

On Feb 19, 2018, CMS Energy announced Consumers Energy's plans to meet Michigan's energy needs reducing carbon emissions by 80% and no longer using coal to generate electricity by 2040. The company also said today that more than 40 percent of the energy produced will come from renewable sources and energy storage by 2040.

On Feb 15, 2018, CMS Energy reported fourth-quarter 2017 adjusted earnings per share of 51 cents which was in line with the Zacks Consensus Estimate of 51 cents. Quarterly earnings however surged 75.9% from the year-ago figure of 29 cents.

Revenue[Note: Only highlighted material has been changed.]

In the fourth quarter of 2017, CMS Energy’s operating revenues came in at $1,778 million, which surpassed the Zacks Consensus Estimate of $1,676 million by 6.1%. Moreover, on a year-over-year basis, revenues surged 8.4% from $1,640 million in the year-ago period.

For 2017, the company generated revenues worth $6.58 billion, which also surpassed the Zacks Consensus Estimate of $6.56 billion. Moreover, on a year-over-year basis, revenues surged 2.9% from $6.40 billion in the year-ago period.

Margins[Note: Only highlighted material has been changed.]

The company’s operating expenses rose 2.9% year-over-year to $1,399 million during the quarter.

Operating income during the fourth quarter was $379 million, up 35.4% from $280 million a year ago.

CMS Energy’s interest charges were $110 million, compared with $111 million in the year-ago period.

Earnings per Share[Note: Only highlighted material has been changed.]

CMS Energy reported fourth-quarter 2017 adjusted earnings per share of 51 cents which was in line with the Zacks Consensus Estimate of 51 cents. Quarterly earnings however surged 75.9% from the year-ago figure of 29 cents.

Excluding the one-time tax reform’s impact of 52 cents, the company reported loss of a penny as against earnings of 28 cents per share in the year-ago quarter.

For 2017, CMS Energy’s adjusted earnings were $2.17 per share, up from $2.03 from the year-ago period. The full-year adjusted earnings also came in line with the Zacks Consensus Estimate.

Guidance

CMS Energy raised its guidance for 2018 adjusted earnings to $2.30-$2.34 per share, from the earlier range of $2.29-$2.33, reflecting 6-8% annual adjusted earnings per share growth.

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