Executive Summary / Key Takeaways

• CMS Energy (NYSE:CMS) demonstrates a robust investment thesis centered on consistent financial performance, a constructive regulatory environment in Michigan, and significant capital deployment towards grid modernization and clean energy.
• The company is actively capitalizing on Michigan's economic renaissance, particularly with substantial load growth from data centers and advanced manufacturing, which is expected to drive 2-3% annual weather-normalized sales growth.
• A $20 billion five-year capital plan through 2029, coupled with over $25 billion in incremental long-term opportunities, underpins an anticipated annual rate-base growth exceeding 8%, primarily focused on electric distribution, gas infrastructure, and renewable generation.
• CMS Energy is advancing its clean energy transition, targeting 60% renewable energy by 2035 and 100% clean energy by 2040, supported by approved plans for up to 9 GW of solar and 2.8 GW of wind, alongside strategic investments in battery storage and natural gas capacity.
• Management has raised the bottom end of its 2025 adjusted EPS guidance to $3.56-$3.60 per share and initiated 2026 guidance at $3.80-$3.87 per share, reflecting a 6-8% growth rate and a commitment to compounding off actuals.

A Legacy of Reliability Meets a Future of Growth

CMS Energy, incorporated in 1987 and headquartered in Jackson, Michigan, has established itself as a cornerstone of the state's energy infrastructure. The company's core mission revolves around providing safe, reliable, affordable, clean, and equitable energy, a purpose it pursues through a "triple bottom line" philosophy that balances people, planet, and prosperity. This long-standing commitment has translated into over two decades of consistent financial performance, a testament to its disciplined execution and conservative planning.

The company's operational backbone is strengthened by its "CE Way" lean operating system and ongoing digital transformation initiatives. These efforts are not merely theoretical; they translate into tangible operational efficiencies and improved service. For instance, CMS Energy has expanded its use of drone technology, enabling faster and safer inspections of hard-to-reach power lines and infrastructure. This technological adoption has directly contributed to reduced average outage time per customer and improved storm recovery capabilities, enhancing grid reliability and customer satisfaction. The integration of such technologies is fundamental to CMS's ability to manage its extensive infrastructure, which includes 81,924 miles of electric distribution overhead lines, 9,775 miles of underground distribution lines, and 1,098 substations, alongside 2,342 miles of natural gas transmission lines and 15 gas storage fields.

Competitive Dynamics in a Transforming Landscape

In the dynamic utility sector, CMS Energy operates within a competitive landscape primarily defined by other regional electric and gas utilities, notably DTE Energy , NiSource , and Ameren . These direct competitors often overlap in service territories and customer segments, necessitating continuous strategic differentiation. CMS's extensive regulatory licenses and established distribution networks provide a significant competitive moat, fostering strong customer loyalty and predictable revenue streams. This infrastructure allows for efficient service delivery, which can translate into capital efficiency.

Compared to DTE Energy (DTE), a fellow Michigan-based utility, CMS offers a comparable value proposition, though DTE may exhibit greater agility in certain operational areas. Against NiSource (NI), which has a strong focus on gas infrastructure in the Midwest, CMS differentiates through its broader energy mix and integrated electric and gas offerings. Similarly, while Ameren (AEE) excels in grid modernization and regulatory navigation in the Midwest, CMS's diversified energy portfolio and customer-centric approach remain key strengths. Indirect competition from alternative energy providers and emerging technologies like advanced battery storage and AI-optimized energy management systems also influences the market. The ongoing AI-driven data center boom, for example, highlights power constraints that could favor innovative alternatives if they offer lower costs or faster deployment. CMS's strategic response involves leveraging its diversified energy portfolio and actively pursuing new generation capacity to meet evolving demand. The company's direct and indirect spend is approximately 90% domestically sourced, a strategic choice that limits exposure to international tariffs and supply chain disruptions, enhancing its competitive resilience.

Strategic Imperatives: Powering Michigan's Renaissance

Michigan is experiencing an economic renaissance, and CMS Energy is at the forefront of powering this growth. The company has successfully connected approximately 450 megawatts of the planned 900 megawatts of industrial growth within its current five-year plan, with an additional 100 megawatts of signed contracts year-to-date. This growth stems from new projects and expansions in diverse industries such as food processing, aerospace and defense, and advanced manufacturing. These developments are crucial, as they bring jobs, bolster supply chains, and stimulate residential and commercial activity across the state.

A significant driver of future demand is the burgeoning data center sector. Following the elimination of sales and use taxes for data centers in Michigan, CMS Energy's pipeline of potential large load customers has grown to 9 gigawatts, with approximately 65% of this pipeline now comprising data centers. The company has already secured an agreement with a new data center expected to add up to 1 gigawatt of incremental load, with an early ramp-up projected to begin in late 2029 or early 2030. This substantial demand growth is incremental to the company's forecasted 2-3% annual weather-normalized sales growth over the next five years. To facilitate this, the finalization of a large load tariff by the Michigan Public Service Commission (MPSC) in November is a critical step, providing clarity for data center projects and protecting existing customers.

To meet this escalating demand and fulfill its clean energy commitments, CMS Energy is embarking on an ambitious capital investment program. The current five-year plan through 2029 allocates $20 billion, representing a $3 billion increase from the prior plan. This investment is strategically distributed, with $14.80 billion dedicated to maintaining and upgrading electric distribution systems and gas infrastructure, and $5.20 billion for clean generation resources, including wind, solar, and hydroelectric. Beyond this, the company has identified over $25 billion in additional customer investment opportunities. These include $10 billion for electric distribution system improvements (rebuilds, undergrounding, hardening, and technology), $10 billion for renewable energy expansion (9 GW of solar and 4 GW of wind over the next two decades), and significant investments from the upcoming 2026 Integrated Resource Plan (IRP) filing. The IRP is expected to detail the need for additional battery storage and natural gas capacity to replace retiring plants and support existing and future load growth.

The 2023 Michigan Energy Law has significantly shaped CMS Energy's strategic direction, raising the renewable energy standard to 50% by 2030 and 60% by 2035, and setting a clean energy standard of 80% by 2035 and 100% by 2040. Consumers Energy's updated renewable energy plan, approved by the MPSC in September 2025, includes up to 9,000 MW of solar and 2,800 MW of new wind energy resources through 2035. The company has also contracted to purchase 700 MW of battery storage capacity, expected to be operational by 2028. These initiatives are crucial for achieving the company's net-zero methane emissions target from its natural gas delivery system by 2030 and its net-zero greenhouse gas emissions target for the entire business by 2050.

Financial Performance: A Track Record of Delivery

CMS Energy's financial performance reflects its strategic execution and a supportive regulatory environment. For the nine months ended September 30, 2025, net income available to common stockholders increased to $775 million, or $2.59 diluted EPS, compared to $731 million, or $2.45 diluted EPS, for the same period in 2024. This growth was primarily driven by higher gas sales due to favorable weather and electric and gas rate increases. However, these gains were partially offset by lower earnings at NorthStar Clean Energy and increased depreciation and property taxes resulting from higher capital spending.

The Electric Utility segment reported operating revenue of $1,679 million and net income of $326 million for the three months ended September 30, 2025, representing a 16.0% and 19.4% increase, respectively, over the prior year period. The Gas Utility segment saw operating revenue of $234 million and net income of $11 million for the same three-month period. NorthStar Clean Energy, while a smaller contributor to overall earnings (approximately 5% of EPS mix), posted operating revenue of $108 million and net income of $11 million for the third quarter of 2025. The nine-month net income for NorthStar Clean Energy, however, declined to $15 million from $53 million in the prior year, primarily due to the timing of renewable project commercial operations and a planned major outage at the Dearborn Industrial Generation (DIG) facility.

Liquidity remains robust, with CMS Energy and Consumers Energy expecting sufficient funds for current and future commitments. As of September 30, 2025, CMS Energy had $515 million, NorthStar Clean Energy had $62 million, and Consumers Energy had $1.20 billion available under their respective revolving credit facilities. The company's financing strategy includes settling forward sale contracts under its equity offering program, which generated net proceeds of $349 million during the nine months ended September 30, 2025, and an additional $147 million in October 2025. CMS Energy targets mid-teens FFO to debt on a consolidated basis to maintain solid investment-grade credit ratings. The company's repurchase of Consumers Energy's first mortgage bonds resulted in a pre-tax gain of $72 million during the nine months ended September 30, 2025.

Outlook and Guidance: Sustaining Momentum

CMS Energy is confident in its ability to sustain its growth trajectory. The company has raised the bottom end of its 2025 adjusted EPS guidance range to $3.56-$3.60 per share, from $3.54-$3.60 per share, with continued confidence towards the high end. For 2026, initial full-year guidance is set at $3.80-$3.87 per share, reflecting a 6-8% growth from the midpoint of the revised 2025 range. This guidance is underpinned by several key assumptions: planning for normal weather, anticipating constructive regulatory outcomes in rate cases, and realizing earned returns at or near authorized levels.

The $20 billion five-year capital plan through 2029 is expected to drive annual rate-base growth exceeding 8%. This plan is set to be further enhanced by the integration of portions of the $25 billion-plus in additional investment opportunities, particularly in electric distribution, renewable energy, and IRP-related projects, which will be detailed in the Q4 call. Management anticipates needing more battery storage and gas capacity as the IRP takes shape, with initial investments for these long-term projects expected to filter into the upcoming five-year plan. The company also expects continued growth from capital-light mechanisms, such as its financial compensation mechanism on Power Purchase Agreements (PPAs) and energy waste reduction programs.

Managing Risks and Ensuring Affordability

While the outlook is strong, CMS Energy operates within a complex environment with inherent risks. Regulatory matters remain critical, as evidenced by the emergency orders requiring the continued operation of the J.H. Campbell coal facility beyond its planned retirement. While FERC has granted Consumers' request for a MISO tariff modification to recover these costs, the long-term impact on the Clean Energy Plan and potential litigation remain uncertain. The company also faces environmental liabilities, including remediation costs at former manufactured gas plant (MGP) sites and CERCLA sites, with recorded liabilities of $60 million and $3 million, respectively, as of September 30, 2025. The ongoing Ludington overhaul contract dispute also carries a potential liability of approximately $350 million.

Affordability for customers is a central tenet of CMS Energy's strategy, especially given the significant capital investments. The company aims to keep customer rates at or below inflation and bills below the national average. This is achieved through rigorous cost-control measures, including the "CE Way" operating system, digital transformation, and energy waste reduction programs. The growing load from economic development, particularly data centers, also helps spread fixed costs over a larger customer base, contributing to affordability. Despite experiencing significant weather-related financial headwinds in recent years, including the costliest storm in its history in March/April 2025, for which a deferred accounting order was approved, CMS Energy has consistently managed to offset these challenges through proactive countermeasures and operational efficiencies.

Conclusion

CMS Energy stands as a compelling investment in the utility sector, characterized by its unwavering commitment to Michigan's energy future and a proven track record of financial delivery. The company's strategic focus on grid modernization, clean energy transition, and economic development, particularly in attracting high-growth industries like data centers, positions it for sustained growth. With a robust capital plan, a clear roadmap for renewable energy and capacity expansion, and a disciplined approach to cost management, CMS Energy is effectively balancing the imperative for significant infrastructure investment with the need for customer affordability. While regulatory complexities and environmental responsibilities present ongoing challenges, the company's proactive engagement with regulators and its operational resilience underscore its ability to navigate these dynamics. For investors, CMS Energy offers a predictable growth profile, supported by a strong balance sheet and a management team committed to compounding value through strategic execution and a deep understanding of its competitive landscape and technological opportunities.