DCF Studio

    CMS · NYQ · Utilities

    CMS Energy Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD -16.39

    Market price

    USD 65.34

    Implied upside

    -125.1%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 41.0% of revenue against depreciation of 15.2%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    USD -16.39-125.1%
    Exit multiple
    USD 15.65-76.1%
    Market price
    USD 65.34

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    -921393587-4606967930FY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.5bnUSD 8.5bnUSD 8.5bnUSD 8.5bnUSD 8.4bn-0.2%
    EBITUSD 1.5bnUSD 1.5bnUSD 1.5bnUSD 1.5bnUSD 1.5bn-0.2%
    NOPATUSD 1.3bnUSD 1.3bnUSD 1.3bnUSD 1.3bnUSD 1.3bn-0.2%
    Add depreciation & amortisationUSD 1.3bnUSD 1.3bnUSD 1.3bnUSD 1.3bnUSD 1.3bn-0.2%
    Less capital expenditureUSD -3.5bnUSD -3.5bnUSD -3.5bnUSD -3.5bnUSD -3.5bn-0.2%
    Less increase in working capitalUSD 1.1mUSD 1.1mUSD 1.1mUSD 1.1mUSD 1.1m+0.2%
    Free cashflow to firmUSD -921.4mUSD -919.4mUSD -917.3mUSD -915.3mUSD -913.3m+0.2%
    Discount factor0.97040.91370.86030.81000.7627-
    Present valueUSD -894.1mUSD -840.0mUSD -789.2mUSD -741.4mUSD -696.6m+6.1%
    Present Value Of The ForecastUSD -4.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.552Reported 0.331, pulled toward 1.0 (Blume)
    Cost of equity8.03%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 20.5bn52.0% of capital
    Total debtUSD 18.9bn48.0% of capital, book value as a proxy
    Tax rate15.5%Effective, capped at statutory
    WACC6.20%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD -16.39

    130% of EV

    Forecast FCFF, final year
    USD -913.3m
    Capex at depreciation, working capital in reinvestment
    USD 1.4bn
    Less reinvestment at g/ROIC (40.3% of NOPAT)
    USD -554.1m
    Capitalised
    USD 821.0m
    ROIC (WACC floor)
    6.2%
    Terminal value, undiscounted
    USD 22.7bn
    Terminal value, discounted
    USD 17.3bn
    Enterprise value
    USD 13.4bn
    Less net debt
    USD 18.4bn
    Equity value
    USD -5.0bn

    Exit at 12.8x EBITDA

    Value per shareUSD 15.65

    117% of EV

    Terminal value, undiscounted
    USD 35.6bn
    Terminal value, discounted
    USD 27.1bn
    Enterprise value
    USD 23.2bn
    Less net debt
    USD 18.4bn
    Equity value
    USD 4.8bn

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.20%24.6430.3339.1655.0092.81
    5.20%-3.57-3.23-2.89-2.54-2.20
    6.20%-16.94-16.67-16.39-16.11-15.84
    7.20%-26.42-26.20-25.97-25.74-25.51
    8.20%-33.45-33.26-33.06-32.87-32.68

    Outlined: this model. Green text: above today's price of 65.34. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year-0.2%21.5%+21.7pp
    EBIT margin17.7%38.4%+20.7pp
    Discount rate6.2%3.9%-2.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.