Tags: CMS | Energy | good | income

CMS Energy: Good Income, but Unlikely to Appreciate

By    |   Wednesday, 20 June 2012 11:14 AM

CMS Energy (CMS) is a regulated power company that analysts believe is in good shape to maintain its business and grow steadily with demand. It provides a strong yield, currently above 4 percent, but is unlikely to appreciate much for now, they note. That makes for a good income play, if not a compelling long-term investment.

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

Consumers serves individuals and businesses operating in the alternative energy, automotive, chemical, metal, and food products industries, as well as a diversified group of other industries. CMS Enterprises, through its subsidiaries and equity investments, is engaged primarily in independent power production and owns power generation facilities fueled mostly by natural gas and biomass.

CMS Energy manages its businesses by the nature of services each provides and operates, principally in three business segments: electric utility, gas utility, and enterprises, its non-utility operations and investments. Consumers’ consolidated operations account for substantially all of CMS Energy’s total assets, income, and operating revenue.

CMS Energy’s consolidated operating revenue was $6.5 billion in 2011.

Consumers owns and operates electric distribution and generation facilities and gas transmission, storage, and distribution facilities. It provides electricity, natural gas or both to 6.7 million of Michigan’s 10 million residents. Consumers’ rates and certain other aspects of its business are subject to regulation.

CMS Energy has a market cap of $6.21 billion in a sector, multi-utilities, where the average company size is $4.51 billion. Its trailing 12-month P/E ratio is 18.55 and its five-year projected price-to-earnings-growth (PEG) ratio is 3.11.

Its projected earnings per share growth for the coming year is 6.49 percent, compared to a sector average of 4.33 percent.

Growth story

Analysts are positive on CMS, with buy or outperform calls from Merrill Lynch and Deutsche Bank. Zacks Investment Research analysts rate the stock a hold with a target price of $24.

“Over the long term the company presents a strong growth story, given its stable electric and gas utility operations, favorable regulatory policies in Michigan, higher rates, strong balance sheet, incremental dividend and relatively cheap earnings-based valuation,” they wrote in late April.

“But we also believe these positives are embedded in the current target price, leaving little room for further upside in the near term.”

CMS Energy next reports on July 26.

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