CMS Energy Corporation (CMS)

Conclusion

CMS Energy is a Michigan-based energy company. Its Electric Utility and Gas Utility serve 1.9 million electric and 1.8 million gas customers, and its NorthStar Clean Energy segment develops renewable generation. At a price of 69.55 USD on 2026-11-09, the company has a market capitalisation of 21.8 billion USD and an enterprise value of 41.6 billion USD.

The verdict is fair. Today's price-to-earnings ratio of 25.0 sits above its ten-year median of 21.2, and enterprise value to EBITDA of 17.4 sits above 12.1. Price to book, at 2.24, is below its median of 2.69. The fair value band runs from 50.30 to 75.45 USD, with a midpoint of 62.88 USD, which gives a margin of safety of -9.6%. The data do not provide a DCF value per share or a reverse DCF, so the growth the price implies cannot be set against delivered growth. Delivered EPS growth over five years is 6.2%.

The strongest numbers are the six beats in the last eight quarters, a Piotroski score of 6 out of 9, and an estimated EPS growth of 6.9% for next year. The weakest are net debt to EBITDA of 8.3x, interest coverage of 1.8x, and ROIC of 4.1% against a WACC of 6.5%. A trailing free cash flow conversion of -2.0x adds to the concern.

Financial health

Financial health is red, because net debt to EBITDA of 8.3x, interest coverage of 1.8x and an Altman Z-score of 0.83 are all assessed bad, while the current ratio of 0.95 is neutral. The quick ratio is 0.47 and debt to equity is 2.08. The Altman Z-score sits in the distress zone, but the model was designed for manufacturers, so this reading should be treated with caution for a utility. Insolvency risk: low, about 1.7% by the estimate of the Ohlson model over one to two years, based on year-end 2025 figures.

Earnings quality

Earnings quality is red, mainly because free cash flow conversion is -2.0x on a trailing basis and -1.0x over five years, reflecting negative free cash flow. Trailing free cash flow after stock-based compensation is -1.7 billion USD. The accrual ratio is -3.0%. The share count has risen by 1.0% a year over five years, so there have been no net buybacks. The Piotroski score is 6 out of 9. The Beneish M-score is not available. Stock-based compensation is not available. Earnings beat estimates in six of the last eight quarters, with an average surprise of 3.1%. Current-year estimates changed by 0.1% over 90 days, and next-year estimates by -0.3%.

Profitability

Profitability is red because ROIC of 4.1% is below WACC of 6.5%, giving a ROIC minus WACC of -2.4%, which is assessed as destroying value. The five-year median ROIC is 5.7%. Gross margin of 53.8% is above its ten-year median of 37.4%. Operating margin of 13.8% is below its median of 18.0%, and net margin of 9.7% is below its median of 11.0%. The DuPont split shows a net margin of 12.5%, an asset turnover of 0.21 and an equity multiplier of 4.42. Return on equity of 9.0% therefore rests heavily on leverage rather than on operating returns.

Growth

Growth is yellow, because all four assessed measures are neutral. Revenue compound growth is -0.2% over three years, 5.9% over five years and 2.8% over ten years. EPS compound growth is 7.3% over three years, 6.2% over five years and 6.5% over ten years. Revenue grew in six of the last ten comparable years. The estimate for next year's EPS growth is 6.9%. The three-year revenue decline is the figure to watch, since it runs against the five-year and ten-year trends.

Valuation

Valuation is yellow, and the verdict is fair, with the only assessed measure neutral. Against ten-year medians, the price-to-earnings ratio of 25.0 is a premium of 18.0% to its median of 21.2. Enterprise value to EBITDA of 17.4 is a premium of 43.1% to 12.1. Price to sales of 2.43 is a premium of 4.1% to 2.33, and price to book of 2.24 is a discount of 16.6% to 2.69. The fair value band is 50.30 to 75.45 USD, with a midpoint of 62.88 USD, which is also the fair value from historical multiples. At the price of 69.55 USD, the margin of safety is -9.6%. The DCF value per share is not available. The DCF inputs are a discount rate of 8.9% and long-term growth of 2.5%, starting from free cash flow of -1.7 billion USD. The reverse DCF is not available. The fair value is an estimate built on fixed assumptions, not a price target. The dividend yield is 3.2%, and the payout on free cash flow is not available.

Risks

The most important risk is the balance sheet. Net debt of 8.3 times EBITDA and interest coverage of 1.8x leave little room for higher borrowing costs or lower earnings. Each of these would reduce the cash left after interest and make refinancing harder. ROIC below WACC means that new investment is currently earning less than it costs, so growth would not add value on current returns. Negative free cash flow means that the dividend and capital spending depend on outside funding. The DCF value, reverse DCF, Beneish M-score, stock-based compensation and free cash flow payout ratio are not available. This analysis has no debt maturity schedule and no revenue split by segment, so refinancing risk and the drivers of each business line cannot be assessed.