Morningstar | CMS Energy's Long-Term Investment Plan Offers Growth Upside
We are reaffirming our $40 fair value estimate and narrow moat rating for CMS Energy after the company reported $0.48 per share of operating earnings in the second quarter of 2018, up 29% from the second quarter of 2017.The jump in earnings was primarily due to favorable weather in the quarter, which we don't expect to persist. Earnings excluding $0.28 per share of favorable weather benefits were up 5% in the first half, slightly below our long-term earnings growth forecast.
The favorable weather through the first six months of the year gives us confidence CMS will meet or exceed our earnings outlook, although we expect CMS to pull forward some future costs in the second half, as it has done in the past. Management reaffirmed its full-year $2.30-$2.34 per-share earnings guidance, in line with our estimate. First-half results also keep CMS on track to achieve our 6% long-term earnings and dividend growth outlook.
CMS' integrated resource plan, or IRP, filing in June supports our 6% long-term growth rate as long as regulators approve the bulk of CMS' proposed investments. The IRP supports CMS' five-year, $10 billion investment plan, which is in line with our outlook.
Our earnings-growth rate forecast could go to 7% or 8% if regulators approve an additional $3 billion investment opportunity included in CMS' proposed plan during the next 10 years. CMS also could boost that growth rate if it can sustain cost reductions that it has achieved for the past several years. If CMS realizes that upside, we would increase our fair value estimate substantially.
Management said that nothing has changed with respect to its strategic plan for Enerbank, which management previously suggested could be up for sale.
CMS Energy is a holding company. The company has several subsidiaries, including: Consumers Energy Company, an electric and gas utility that serves individuals and businesses operating in the alternative energy, automotive, chemical, food, and metal products industries, as well as a group of other industries; CMS Enterprises Company, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production; and EnerBank USA, an industrial bank located in Utah that provides unsecured consumer installment loans, primarily for financing home improvements.
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