Time to buy CMS equity?

CMS stock has under-performed since the Michigan Public Service Commission Staff provided its testimony on November 15. While the company’s demand and Staff’s recommendation are far apart (staff proposed 20% of ask, but not on a comparable basis), I believe the settlement will be fair and the allowed ROE will be between 10.25% and 10.5%. Most important, this allowed ROE will sustain earnings growth of 5-7% over the next five years and enable the company to trade at a premium to its peers.
As a reminder, in a rate-case earlier this year, Consumers Energy requested a revenue increase of $196 mm, premised on a rate-base of $7.538 Bln, a 42.07% equity and an allowed ROE of 10.7%. The Michigan Public Service Staff recommended a revenue increase of $39 mm, premised on a rate-base of $7.309 Bln, 42.07% equity and an allowed ROE of 9.95%.

I also like the holdCo bonds, which trade wider than BBB holdCo peers (approx 300 bp for the 2014).

Please email me for details.

Disclaimer: I do not have a position in CMS and do not plan to initiate a position in the next 48 hours

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