CMS Energy Stock Shows Every Sign Of Being Fairly Valued
- By GF Value
The stock of CMS Energy (NYSE:CMS, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $60.93 per share and the market cap of $17.6 billion, CMS Energy stock is believed to be fairly valued. GF Value for CMS Energy is shown in the chart below.
Because CMS Energy is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 1.68% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. CMS Energy has a cash-to-debt ratio of 0.01, which which ranks in the bottom 10% of the companies in the industry of Utilities - Regulated. The overall financial strength of CMS Energy is 3 out of 10, which indicates that the financial strength of CMS Energy is poor. This is the debt and cash of CMS Energy over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. CMS Energy has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $6.7 billion and earnings of $2.64 a share. Its operating margin is 20.39%, which ranks better than 68% of the companies in the industry of Utilities - Regulated. Overall, GuruFocus ranks the profitability of CMS Energy at 7 out of 10, which indicates fair profitability. This is the revenue and net income of CMS Energy over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of CMS Energy is -0.2%, which ranks worse than 69% of the companies in the industry of Utilities - Regulated. The 3-year average EBITDA growth rate is 3.5%, which ranks in the middle range of the companies in the industry of Utilities - Regulated.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, CMS Energy's ROIC was 4.21, while its WACC came in at 2.86. The historical ROIC vs WACC comparison of CMS Energy is shown below:
In summary, CMS Energy (NYSE:CMS, 30-year Financials) stock is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Utilities - Regulated. To learn more about CMS Energy stock, you can check out its 30-year Financials here. To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener. This article first appeared on GuruFocus.
