The electric utility business at CMS Energy Corp. (CMS) provides a stable earnings stream supported by continued capital investment, notes Argus Research analyst Jacob Kilstein.

Over the last fifteen years, EPS has grown at an above-peer average rate of 7%. Management continues to project annual EPS growth of 6%-8% — better than the average of 5%-7% for most utilities.

The company benefits from a favorable location in Michigan, with a rising population, a high proportion of skilled labor, a business-friendly regulatory environment, and relatively low exposure to severe weather events.

We believe that the company’s consistent, above-average growth more than offsets concerns about the stock’s high valuation or the negative impact of rising interest rates.

The shares trade at 20.5-times our 2019 EPS forecast, above the peer median of 18.8 for electric and gas utilities with fully regulated operations.

Our $56 target implies a P/E of 22.4, which we feel is appropriate given the company’s consistent above-average performance. Our 12-month target price is $56 per share.

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