On Tuesday, Mizuho has downgraded CMS Energy (NYSE:CMS) shares, traded on the New York Stock Exchange under the ticker NYSE:CMS, from Outperform to Neutral. The firm also adjusted the price target for the company's shares from $76.00 to $72.00. The revision comes amid perceptions of limited potential for the stock's valuation to rise significantly from its current levels.
The downgrade by Mizuho is based on two primary factors. Firstly, the current valuation is seen as accurately reflecting CMS Energy's strengths, which include beneficial regulation in Michigan and a consistent earnings per share (EPS) growth. The firm believes that the stock's current price adequately captures these positive aspects, leaving little room for a notable increase in the stock's multiple.
Secondly, Mizuho points out that consensus estimates for the company's growth are already at the top end of the guidance range. These estimates extend through 2026 and align with the higher end of the long-term growth rate range of 6-8% set by CMS Energy.
With expectations already leaning towards the upper limit, Mizuho does not anticipate significant upward revisions to these estimates unless the company's guidance range changes, which the firm also considers unlikely.
Mizuho maintains its estimates for CMS Energy but has reduced the price target to $72 to better reflect the current market multiples. The analyst's comments suggest that the risk-reward balance for both the stock's multiple and EPS growth is now evenly poised, leading to the neutral stance on the stock.
In other recent news, CMS Energy has reported promising second-quarter financial results, with adjusted earnings per share for the first half of the year rising to $1.63, an increase of $0.18 from the same period last year. The company has also reaffirmed its full-year earnings guidance of $3.29 to $3.35 per share.
Mizuho Securities and BMO Capital Markets have both maintained an Outperform rating on CMS Energy, raising their stock price targets to $76.00. These adjustments follow recent testimonies in CMS Energy's electric rate case, which were seen as constructive, suggesting a favorable regulatory environment in Michigan.
In addition to these developments, CMS Energy has announced the progression of a 230-megawatt data center project, expected to be completed by 2026, and a settled gas rate case that includes $62.5 million of effective rate relief.
The company also plans to file a 20-year renewable energy plan in the near future. These are among the recent developments that underline the company's robust financial performance and growth prospects, particularly in renewable energy and data centers.
InvestingPro Insights
While Mizuho has downgraded CMS Energy to Neutral, recent data from InvestingPro offers additional context to the company's financial position. CMS Energy's market capitalization stands at $20.87 billion, with a P/E ratio of 21.44. This valuation aligns with Mizuho's assessment that the stock's current price adequately reflects the company's strengths.
InvestingPro Tips highlight that CMS Energy has raised its dividend for 17 consecutive years, demonstrating a commitment to shareholder returns that may appeal to income-focused investors. Additionally, the stock is trading near its 52-week high, which corroborates Mizuho's view on limited upside potential.
The company's revenue for the last twelve months as of Q2 2024 was $7,406 million, with a gross profit margin of 41.18%. These figures provide insight into CMS Energy's financial performance, which underpins the analyst's expectations for consistent earnings growth.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide further insights into CMS Energy's investment potential.
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