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CMS Energy Upped to Outperform

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On May 17, 2013, we upgraded the utility company, CMS Energy Corporation (CMS - Free Report) to Outperform from Neutral based on its improved prospects as well as solid first quarter 2013 results.

Why the Upgrade?

On Apr 25, 2013, CMS Energy reported impressive first-quarter earnings surpassing the Zacks Consensus Estimate by 15.2%. A colder-than-normal weather spiked natural gas deliveries, driving better-than-expected results in the reported quarter.

The company’s regulated electric power operations in Mich. generate a relatively stable and growing earnings stream. It plans to use around $6.5 billion to $7.0 billion in the next five years (2013 – 2017) on upgrading its distribution system and generation assets through projects such as advanced metering infrastructure (AMI) and renewable (wind) investments.

With its strong pipeline of regulated investment opportunities and favorable regulatory treatment, the company remains on track to achieve its long-term earnings per share growth target of 5% to 7% and annual rate base growth of 6% to 7%.

Again, a CMS Energy unit, Consumers Energy intends to build a 700 megawatt (MW) natural gas-fired power plant in Genesee County. The estimated cost of the project is $750 million. Located in Thetford Township, about 20 miles northeast of Flint, the major new natural gas-fired power plant would be able to serve a community of about 445,000 people post completion.

The company expects to begin construction in 2015 with the plant coming online by 2017. The project will likely create 600 construction job opportunities. The natural gas power plant will not only help the company to add profits but will also meet the energy needs of Consumers Energy's customers over the next 20 years under the Balanced Energy Initiative program. The company will use modern technology to meet the demand of its 1.8 million electric customers.

Overall, the solid first-quarter results, a constructive Mich. regulatory environment, along with the upcoming certificate of need process for its proposed $750 million, 700 MW natural gas combined-cycle plant will help CMS Energy maintain this momentum.

Other Stocks to Consider

CMS Energy currently retains a Zacks Rank #3 (Hold). Other utility stocks worth considering include CPFL Energia S.A. , Empresa Nacional de Electricidad S.A. and American Electric Power Co., Inc. (AEP - Free Report) . While CPFL Energia and Empresa Nacional retain a Zacks Rank #1 (Strong Buy), American Electric carries a Zacks Rank #2 (Buy).

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