A Look At The Intrinsic Value Of CMS Energy Corporation (NYSE:CMS)

editorial-team@simplywallst.com (Simply Wall St)

Fri, May 16, 2025, 3:48 AM 5 min read

• The projected just worth for CMS Energy is US$69.23 based connected Dividend Discount Model

• CMS Energy's US$70.90 stock terms indicates it is trading astatine akin levels arsenic its just worth estimate

• Analyst terms people for CMS is US$75.14, which is 8.5% supra our just worth estimate

Does the May stock terms for CMS Energy Corporation (NYSE:CMS) bespeak what it's truly worth? Today, we volition estimation the stock's intrinsic worth by estimating the company's aboriginal currency flows and discounting them to their contiguous value. We volition usage the Discounted Cash Flow (DCF) exemplary connected this occasion. Before you deliberation you won't beryllium capable to recognize it, conscionable work on! It's really overmuch little analyzable than you'd imagine.

Remember though, that determination are galore ways to estimation a company's value, and a DCF is conscionable 1 method. If you privation to larn much astir discounted currency flow, the rationale down this calculation tin beryllium work successful item successful the Simply Wall St investigation model.

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As CMS Energy operates successful the integrated utilities sector, we request to cipher the intrinsic worth somewhat differently. In this attack dividends per stock (DPS) are used, arsenic escaped currency travel is hard to estimation and often not reported by analysts. This often underestimates the worth of a stock, but it tin inactive beryllium bully arsenic a examination to competitors. The 'Gordon Growth Model' is used, which simply assumes that dividend payments volition proceed to summation astatine a sustainable maturation complaint forever. For a fig of reasons a precise blimpish maturation complaint is utilized that cannot transcend that of a company's Gross Domestic Product (GDP). In this lawsuit we utilized the 5-year mean of the 10-year authorities enslaved output (2.8%). The expected dividend per stock is past discounted to today's worth astatine a outgo of equity of 6.2%. Relative to the existent stock terms of US$70.9, the institution appears astir just worth astatine the clip of writing. The assumptions successful immoderate calculation person a large interaction connected the valuation, truthful it is amended to presumption this arsenic a unsmooth estimate, not precise down to the past cent.

Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)

= US$2.4 / (6.2% – 2.8%)

= US$69.2

The calculation supra is precise babelike connected 2 assumptions. The archetypal is the discount complaint and the different is the currency flows. If you don't hold with these result, person a spell astatine the calculation yourself and play with the assumptions. The DCF besides does not see the imaginable cyclicality of an industry, oregon a company's aboriginal superior requirements, truthful it does not springiness a afloat representation of a company's imaginable performance. Given that we are looking astatine CMS Energy arsenic imaginable shareholders, the outgo of equity is utilized arsenic the discount rate, alternatively than the outgo of superior (or weighted mean outgo of capital, WACC) which accounts for debt. In this calculation we've utilized 6.2%, which is based connected a levered beta of 0.800. Beta is simply a measurement of a stock's volatility, compared to the marketplace arsenic a whole. We get our beta from the manufacture mean beta of globally comparable companies, with an imposed bounds betwixt 0.8 and 2.0, which is simply a tenable scope for a unchangeable business.