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CMS Energy in 4Q16: Can Investors Expect a Positive Surprise?

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CMS Energy in 4Q16: Can Investors Expect a Positive Surprise? PART 1 OF 4

Can CMS Energy Beat Analysts’ 4Q16 Earnings Estimates?

CMS Energy: earnings

Michigan-based CMS Energy (CMS) will report its fourth quarter and 2016 full-year financial results on February 2, 2017. According to analysts’ estimates, CMS is expected to earn $0.29 per share for the quarter ended December 31, 2016. CMS earned $0.38 per share in the fourth quarter of 2015.

CMS Energy expects its fiscal 2016 EPS (earnings per share) to come in at the higher end of its 2016 guidance range of $2.00–$2.02. CMS has estimated long-term earnings growth of 6%–8%, with a fiscal 2017 guidance range of $2.13–$2.17 per share.

Can CMS Energy Beat Analysts&#8217; 4Q16 Earnings Estimates?

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Earnings drivers

US utilities (XLU) are expected to benefit from the favorable weather during the fourth quarter of 2016. Analysts are estimating CMS to report total revenues of nearly $2 billion in 4Q16, as compared to revenues of about $1.5 billion in 4Q15.

According to the EIA (US Energy Information Administration), the average residential customer will consume 3% more electricity from December 2016 to March 2017 than they did during the same period in the previous year. This may boost utilities’ (XLU) revenues in the coming quarters.

CMS Energy manages electric and gas distribution operations in Michigan. DTE Energy (DTE) is CMS’s relatively large peer in Michigan, with electric, gas, and midstream operations.

CMS Energy and DTE Energy benefit from the healthy regulatory framework in Michigan. They use a forward test year for all their rate cases, facilitating a faster investment recovery and eliminating regulatory lag. Using a forward test year mean that a utility’s next year’s expected capital spending is considered when finalizing its next year’s energy rates. This practice helps utilities fetch higher returns on equity and effectively minimizes regulatory lag, ultimately benefitting earnings.

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