cms energy (cms)

CMS Energy is a holding company with regulated and non-regulated

subsidiaries, serving 1.8 million electric customers and 1.7 million gas

customers in Michigan.

Substantially improved EPS performance underscores unique business

strategy; we continue to anticipate predictable, above-average EPS CAGR.

Accelerated investment opportunities should fuel attractive total returns, driven by

infrastructure upgrade/replacement needed to maintain system reliability as well as

additional investment to meet Michigan’s energy policy goals. Constructive

regulation is expected to keep earned ROEs close to authorized levels. Growth

prospects position CMS well for 5-7% EPS CAGR longer term.

■ CMS reported 3Q15 EPS of $0.53 beating our/consensus estimate of

$0.45/$0.49. The 43% Y/Y EPS improvement from $0.37 in 3Q14 is mainly

attributable to rate increases in both the electric and gas segments as well as

favorable weather and effective O&M cost controls.

■ 2015 EPS guidance narrowed to $1.87-$1.89, in the upper end of

management’s long-term EPS CAGR target of 5-7%. 2016 EPS guidance

introduced at $1.97-$2.01, which compares with our unchanged forecast of $2.00

and consensus of $2.01.

■ Organic infrastructure investment opportunities drive highly visible EPS

growth prospects. CMS estimates $15.5 billion of investment is needed in the

next 10 years to improve system reliability, reduce emissions, expand power

generating capacity, and upgrade/expand/replace aging energy infrastructure.

FY15 expenditures are expected to be $1.6 billion following a record $1.7 billion

in 2014. Upside to our forecast may stem from additional investment in

renewables, gas-fired generation capacity, and grid modernization.

- Capex was $427 million in 3Q15, yielding YTD capex of $1.1 billion, which is

approximately 69% of 2015 budget.

■ MI legislation may provide further investment opportunities. Discussions

include ROA and renewable portfolio standards.

■ Electric and gas rate cases pending. CMS has requested a $198.6 million rate

increase (+5.0%) and $85.7 million increase (+5.1%) for gas utility customers.

The requests are predicated on an Electric/Gas rate base of $9.3/$4.2 billion,

respectively, a 41.5% equity layer, and a 10.7% allowed ROE (10.3% currently).

■ Valuation. Our $38 price target is ~16x our 2017 EPS (adjusted for $1-$2/share

in NOLs). We believe CMS should at least trade in line with peers (15.5x-16.5x)

when fully valued, reflecting above-average total return prospects fueled by an

extensive pipeline of infrastructure investments supported by a constructive

regulatory environment.

October 30, 2015 Baird Equity ResearchUtilities

CMS Energy (CMS)EPS Up 43% Y/Y, Highlighting Successful Growth Strategy

David E. Parker

[email protected]

813.274.7620

Jacqueline M. Parlin

[email protected]

646.557.3206

Mike Bates

[email protected]

414.765.7054

[Please refer to Appendix- Important Disclosuresand Analyst Certification]

ESTIMATE CHANGE

1-Year Price Chart

N-1

4

D-1

4

J-15

F-15

M-1

5

A-15

M-1

5

J-15

J-15

A-15

S-15

O-1

5

40

38

36

34

32

3031

38

Stock Data

Rating: Outperform

Suitability: Lower Risk

Price Target: $38

Price (10/28/15): $36.25

Market Cap (mil): $10,038

Shares Out (mil): 276.9

Average Daily Vol (mil): 2.46

Dividend Yield: 3.2%

Estimates

FY Dec 2014A 2015E 2016E

Q1 0.75 A 0.73 A

Q2 0.30 A 0.25 A

Q3 0.37 A 0.53 A

Q4 0.35 A 0.38 E

Fiscal EPS 1.77 A 1.89 E 2.00 E

Fiscal P/E 20.5x 19.2x 18.1x

Chart/Table Sources: Factset and Baird Data

October 30, 2015 | CMS Energy

3Q15 Earnings CMS Energy reported 3Q15 EPS of $0.53 solidly above our/consensus estimates of $0.45/$0.49. The 43% Y/Y ramp in EPS from $0.37 in 3Q14 was primarily driven by increased

electric sales due to weather and increased rates in both the electric and gas segments. Lower O&M spending in both the electric and gas segments also contributed meaningfully to earnings. Partially offsetting these positives were increased depreciation and property taxes and higher benefits costs. 2015 EPS guidance narrowed to $1.87-$1.89 from $1.86-$1.89, consistent with a 6-7%

CAGR, on the upper end of management’s long-term EPS target range. We forecast FY of $1.89 with consensus at $1.88. 2016 EPS guidance introduced at $1.97-$2.01, within the 5-7% EPS growth target off of

2015 estimated EPS midpoint. We forecast $2.00 with consensus at $2.01 as CMS has maintained EPS growth in the 7% range over the last five years.

Figure 1: 3Q15 Earnings

Source: Company reports & RW Baird & Co. estimates

CMS Energy- Results Variance ($ mil)

Variance Drivers

3Q15 3Q14 Baird % EPS $ %

Gross Margin 860 775 745 11% 0.21 115 15%

Electric Margin 659 584 515 13% 0.19 144 28%Higher system deliveries due

to w eather, increased rates

Gas Margin 132 120 124 10% 0.03 8 7%

2015 rate increase; partially

offset by low er deliveries due

to w eather

Expenses:

OG&A 311 329 332 -5% 0.04 (21) -6%Low er electric and gas O&M

spending

Other Taxes 59 57 58 4% (0.00) 1 1%

DD&A 173 153 166 13% (0.05) 7 4%Higher electric depreciation

expense

Total Expenses 1,169 1,194 1,147 -2% (0.06) 22 2%

EBITDA 490 389 373 26% 0.25 117 31%

EBIT 317 236 204 34% 0.20 113 55%

Interest Expense 101 101 103 0% 0.00 (2) -2%

Other Income 7 15 3 -53% (0.02) 4 133%

Pretax Income223 150 190 49% 0.18 33 18%

Higher EnerBank, Enterprise

earnings

Income Taxes 75 47 66 60% 9 13%

Tax Rate 34% 31% 35% (0.02)

Net Income $148 $103 $123 44% $0.16 $25 20%

Diluted Shares 277 276 277 0% ($0.00) (0) 0%

Diluted EPS $0.53 $0.37 $0.45 43% $0.16 $0.09 20%

Electric $0.60 $0.47

Natural Gas ($0.02) ($0.03)

Enterprises $0.01 $0.00

Corp/Other ($0.06) ($0.07)

Quarterly Results Variance BairdChg Y/Y

Details

2Robert W. Baird & Co.


Figure 2: Variance Drivers


Figure 3: Electric and Gas Stats


Figure 4: Capital Expenditures Trend


CMS Energy CMS Energy

Electric Stats Gas Stats

3Q15 3Q14 Y/Y Chg 3Q15 3Q14 Y/Y Chg

Electricity Sales (millions of kWh) Gas Sales (thousand Bcf)

Residential 3,490 3,202 9.0% Residential 9,105 10,717 (15.0%)

Commercial 3,226 2,897 11.4% Commercial 3,272 3,457 (5.4%)

Industrial 2,195 2,370 (7.4%) Industrial 620 663 (6.5%)

Wholesale 44 44 0.0% Other 72 38 89.5%

Other 97 99 (2.0%) Transportation 13,636 13,480 1.2%

Retail Open Access 1,031 1,069 (3.6%) Total Bcf 26,705 28,355 (5.8%)

Total kWh sales 10,083 9,681 4.2% Weather Impact -1,360 108

Weather Impact 71 -164 Weather Adjusted Sales 28,065 28,247 (0.6%)

Weather Adjusted Sales 10,012 10,055 (0.4%)

CMS Energy

CapEx ($ millions)

YTD % of Annual

3Q15 3Q14 % Chg 2015 2014 2015E 2014

CapEx ($ millions) $427 $462 (7.6%) $1,102 $1,125 68.9% 69.8%

Capex Trend 2011 2012 2013 2014 2015E 2016E 2017E 5-YR CAGR

Annual CapEx 922 1,261 1,403 1,612 1,600 1,600 1,400 2.1%

Estimated Rate Base 10,519 11,060 11,445 12,336 13,355 14,311 14,848 6.1%

Quarterly Results YTD Results



Regulatory Outlook Electric rate case. CMS requested a revised $198.6 million rate increase, based on a 10.7%

ROE, 41.5% equity component, and $9.248 billion rate base. The company proposes a $201.9 million initial increase, with an additional $35.2 million increase with the close of Jackson natural gas plant (expected to close post 12/1/15), and finally a $38.5 million decrease with the close of several coal plants in 4/2016. Also in this filing, the company proposes an additional $163.7 million rate increase on 6/1/16 and $78.2 million on 6/1/17 through an Investment Recovery Mechanism. The ALJ judge recommended a ~$106 million increase on 9/16/15. A final order is expected by the end of 2015. Gas rate case. CMS filed a gas rate case on 7/17/15 requesting an $85.7 million revenue

increase, premised on a 10.7% ROE and 41.42% equity component; rate base of $4.0 billion. CMS also requests an Investment Recovery Mechanism to increase rate by $146.7 million due to estimated investments during 2017-2019. New Commissioner Appointed. Governor Snyder appointed Norm Saari to the MPSC on

July 22. Saari began his term on the Commission following Senate approval, on August 2 to replace Greg White. Saari represents the Republican Party and has held other legislative jobs as well as worked for Consumers for over 30 years.

Recent Events/Outlook Significant regulated investment opportunities expected to drive above-average EPS CAGR. CMS Energy’s regulated utility, Consumers Energy (Consumers), plans to invest $7.6

billion from 2015-2019 to improve system reliability, reduce power plant emissions, expand power generating capacity and upgrade, expand or replace aging energy infrastructure. Investment is earmarked for: cleaner/efficient power generation, expanding electric and natural gas infrastructure capacity, enhance system reliability and optionality and system expansion. CMS’ project pipeline includes “bite sized” projects, which we believe lowers execution risks.

FIGURE 5: 5-YEAR CAPEX PLAN

Source: Company reports

CMS delves deeper into the realm of renewable energy as Michigan’s Energy Goals create need for significant energy infrastructure investment. Underinvestment, changing

customer needs, and tightening emission and environmental standards have boosted needed infrastructure investment. Michigan’s governor recently reiterated the state’s energy policy: reduce the reliance on coal, grow use of renewable energy and natural gas, and improve energy affordability and reliability while protecting the environment.



Community Solar Project. CMS will develop 4 MW of solar energy in a community

solar program called Solar Gardens. CMS has been increasing their renewable fuel mix and last year, CMS reached its goal of 10% of its electricity use from renewable sources.

Apple Blossom Wind Farm. Producing 100 MW, this project is under construction

and should be commercially operational in 2016. CMS will utilize a PPA agreement with the option to purchase. CMS currently utilizes two wind farms and has contracts to purchase wind, landfill gas, anaerobic digestion, hydro, and solar energy.

Modifications to Michigan’s energy policy could provide upside for investment opportunities. Michigan lawmakers are diligently working on a new bill to address retail open

access adjustments and renewable portfolio standards. ROA may be capped at 10% with a one-way door for customers to return to the utility. Discussions include debate on whether customers should come back into the system over three to five years and how that process would work. ROA load in CMS service territory is about 800 MW, and if that load returned, CMS has indicated the need for longer-term new generation solutions. ROA changes are not in management forecasts and would provide upside to the current projections. Renewables standards are also a topic being discussed as the Clean Power Plan puts demands on states to meet certain emission reduction goals. In the past, CMS has added wind generation to its rate base at attractive cost to customers. Committee hearings were completed in October; the bill will go on to a Committee and full vote before potentially being signed by the governor into law likely by year-end. CMS displays capacity diversity as it has already worked to move its generation to a cleaner and more cost competitive mix. Management plans to further decrease coal mix to

25% by next year and boasted their reduction efforts of coal source to ~33% from over 40%. These reductions are a result of CMS decision to retire seven coal-fueled units. With the planned retirement of these units and the potential tightening of the MISO capacity market, Consumers could experience a shortfall in generation capacity of up to 1,500 MW in 2016. In 2013, 46% of the energy Consumers delivered was generated at its four operating coal-fueled generating sites.

FIGURE 6: CAPACITY PORTFOLIO MIX EVOLUTION

Source: Company presentation

Substantial generation investment opportunities reflecting short power capacity position likely provides EPS growth upside. In order to meet Michigan’s renewable portfolio

standards, reduce emissions and meet a larger percentage of its customers' energy needs via owned resources, CMS plans $1.7 billion in new generation over the next ten years. A recent MISO study shows Zone 7 to have a capacity shortfall of ~$1.3 GW.

Expiring PPAs, retiring coal-fueled generation capacity, coal-heavy fuel mix provides upside potential to CapEx forecasts. Consumers relies heavily on power

generation from third parties, with 49% of the electricity delivered to regulated customers through long-term PPAs, seasonal purchases, and the MISO energy market in 2013. Consumers must supplement its generation capability with purchases from the MISO energy market to meet its customers’ needs during peak demand



periods. With 3,000 to 4,000 MWs of supply/demand changes in the next ten years, upside to infrastructure investment forecast likely exists and $1 billion in annual PPA costs enhances Consumers buy/build/own generation optionality.

FIGURE 6: 10-YEAR OWNED CAPACITY GROWTH POTENTIAL FROM EXPIRING PPAS

Source: Company reports


Investment Thesis

Significant regulated investment opportunities expected to drive above-average EPS CAGR.

Our Outperform rating reflects our expectation that accelerated infrastructure investment needs will

drive attractive total returns. We forecast CMS Energy’s EPS CAGR to be 5-7% for the foreseeable

future, supported by infrastructure upgrade/replacement needed to maintain system reliability as well

as additional investment to meet Michigan’s energy policy goals. Potential modifications to Michigan's

energy policy, likely in 2015, could fuel additional investment needs.

■ Energy investment improves reliability, system efficiency. Under-investment, changing state

energy policies and changing customer needs as well as tightening emission and environmental

standards have boosted needed infrastructure investment. CMS estimates that over $15.5 billion of

investment (current rate base $12.9 billion) is needed in the next 10 years. Despite substantial rate

base growth, the impact to a customer’s bill is expected to be less than inflation (~2%/year).

■ With over $6 billion in infrastructure investment in its rear view mirror, CMS has

demonstrated expertise at managing accelerated investment program. A 6% increase/year in

rate base fueled a five-year EPS CAGR of 7%, making CMS a top total return investment in the

past five years. Residential and commercial customer bills remain below regional averages.

Expected changes in rate design should improve industrial rate comps.

■ Substantial generation investment opportunities reflecting short power capacity position

likely provides EPS growth upside. In order to meet Michigan’s renewable portfolio standards,

reduce emissions and meet a larger percentage of its customers' energy needs via owned

resources, CMS plans $2.3 billion in new generation over the next 10 years, which may increase if

ROA is modified/eliminated.

■ Constructive regulation. Innovative regulatory practices and policies, like forward test years,

self-implementing interim rates and enhanced regulatory recovery mechanisms have kept earned

ROEs above peers despite accelerated investment.

■ Attractive dividend yield and above-average dividend growth potential. At 3.2%, CMS has a

dividend yield generally inline with peers in the regulated electric/gas utility group, which has an

average yield of 3.5%. We expect CMS to grow its dividend ~6%/year and maintain a payout ratio

to EPS of roughly 60%.

■ Valuation. Our $38 price target is ~16x our 2017E EPS (adjusted for $1-$2/share in NOLs). We

believe CMS should at least trade in line with peers (15.5x-16.5x) when fully valued reflecting

above-average total prospects fueled by an extensive pipeline of infrastructure investments

supported by a constructive regulatory environment. Despite accelerated investment needs, CMS

has earned solid regulated ROEs reflecting a constructive Michigan regulatory environment and

CMS’ successful cost containment efforts. These key metrics support a valuation multiple at least in

line with peers, if not a premium valuation.

Risks & Caveats

Our suitability rating on CMS Energy is Lower Risk, reflecting the stable earnings provide by its

regulated natural gas distribution and electric operations, long-term dividend history, and solid balance

sheet. Risks include the following:

■ Weather and declining consumption trends. As per capita usage decreases due to

conservation, utility revenue tied to volume consumption can be negatively affected. As the

company does not yet have decoupling, revenue is linked to weather patterns. Mild winter

temperatures decrease demand while extreme winter weather increases operating expenses as

crews work around the clock to restore power after outages.



■ Changes in regulatory climate. We believe the company has a constructive relationship with the

Wisconsin commission. It is difficult to predict how changes in the Commission’s makeup could

change the company’s regulatory treatment.

■ Economic cycle risk. While residential usage tends to be largely immune to economic slowdown,

use by commercial and industrial (C&I) customers may be impacted. C&I customers make up 62%

of CMS Energy’s total electric sales.

■ Commodity price increases. The company has limited control of the wholesale prices of natural

gas, oil or coal. A spike in the price of these fuels could adversely affect the company’s financial

results. CMS Energy has a recovery mechanism to allow it to pass fuel costs onto customers, but it

must stay within a 2% symmetrical band of its estimate or defer the costs or benefits, and high rates

may increase regulatory pressure.

■ Purchased power increases. CMS Energy engages in open-market purchases for a portion of its

electricity needs. Like natural gas prices, the price of wholesale electricity can and does fluctuate.

Such fluctuations could adversely affect CMS Energy’s operations.

■ Additional external financing possible. All capital requirements that exceed available cash will

have to be provided by external financing. The availability of funds depends on many factors,

including conditions in the securities markets and general economic conditions generally, as well as

the debt ratings and future income and cash flow of CMS and its subsidiaries.

■ Financial risk. Increases in interest rates could result in increased cost of capital as CMS Energy

refinances fixed rate debt at maturity and/or re-markets multi-annual tax-exempt bonds.

Company Description

CMS Energy is a public utility holding company headquartered in Jackson, Michigan. Its principal

subsidiary, Consumers Energy (Consumers), began operations in Michigan in 1886 and provides

regulated electric and gas services to roughly 6.5 million of Michigan’s 10 million residents. CMS

Enterprises, a substantially smaller unregulated subsidiary, is predominantly involved in US

independent power production.



Income Statement 2011Y 2012Y 2013Y 2014Q1 2014Q1 2014Q1 2014Q4 2014Y 2015Q1 2015Q2 2015Q2 2015Q4 2015Y 2015Y 2015Y

($ mil) 2011 2012 2013 1Q14 2Q14 3Q14 4Q14 2014 1Q15 2Q15 3Q15 4Q15E 2015E 2016E 2017E

Operating Revenue

Electric Utility 3,913 4,031 4,173 1,224 1,051 1,153 1,008 4,436 1,033 1,007 1,233 988 4,261 4566 4827

Gas Utility 2,340 1,982 2,148 1,158 335 206 664 2,363 995 274 184 792 2,245 2,290 2,336

Enterprises 204 183 181 122 62 51 64 299 60 45 43 91 239 246 254

Corp/Other 46 57 64 19 20 20 22 81 23 24 26 12 85 86 88

Total CMS Revenue 6,503 6,253 6,566 2,523 1,468 1,430 1,758 7,179 2,111 1,350 1,486 1,883 6,830 7,189 7,505

Fuel for Electric Generation 636 598 621 219 154 161 139 673 167 134 161 157 619 656 696

Purchased Power 1,364 1,451 1477 522 381 408 381 1,692 372 358 413 397 1,540 1,617 1,698

Cost of Gas Sold 1512 1150 1228 834 187 86 386 1493 589 113 52 493 1247 1309 1374

Gross Margin 2,991 3,054 3,240 948 746 775 852 3,321 983 745 860 836 3,424 3,607 3,737

Operation & Maintenance 1,237 1,166 1,237 266 304 329 333 1,232 283 312 311 338 1,244 1219 1195

Depreciation 546 598 628 199 151 153 182 685 222 169 173 177 741 804 863

General Taxes 205 229 234 75 56 57 64 252 81 60 59 57 257 262 267

Total Operating Expenses 5,500 5,192 5,425 2,115 1,233 1,194 1,485 6,027 1,714 1,146 1,169 1,619 5,648 5,868 6,093

EBITDA 1,549 1,659 1,769 607 386 389 455 1,837 619 373 490 441 1,923 2,125 2,275

EBITDA Margin 23.8% 26.5% 26.9% 24.1% 26.3% 27.2% 25.9% 25.6% 29.3% 27.6% 33.0% 23.4% 28.2% 29.6% 30.3%

EBIT 1,003 1,061 1,141 408 235 236 273 1,152 397 204 317 264 1,182 1,321 1,412

EBIT Margin (%) 15.4% 17.0% 17.4% 16.0% 17.3% 18.4% 18.8%

Growth (%)

Other Income/Expense (25) 9 12 2 (7) 15 (17) (7) 6 3 7 (1) 15 15 15

Interest Expense 415 389 398 101 101 101 104 407 101 103 101 103 408 446 468

Interest on LT Debt 396 372 385 97 99 98 99 393 96 97 95

Other Interest Expense 23 21 16 5 3 4 5 17 6 7 7

AFUDC-Debt (4) (4) (3) (1) (1) (1) 0 (3) (1) (1) (1)

EBT 564 681 755 309 127 150 152 738 302 104 223 162 791 860 929

EBT Margin (%) 8.7% 10.9% 11.5% 12.2% 8.7% 10.5% 8.7% 10.3% 14.3% 7.7% 15.0% 8.6% 11.6% 12.0% 12.4%

Growth (%)

Income Tax Expense 181 258 302 105 43 47 55 250 100 36 75 57 277 301 325

Effective Rate (%) 32% 38% 40% 34% 34% 31% 37% 34% 33% 35% 34% 35% 35% 35% 35%

Preferred Dividends 0

Net Income 383 418 451 204 83 103 95 485 202 67 148 105 523 559 604

Shares Outstanding, Basic 251 261 265 266 268 268 274 271 275 275 276 276 276 276 276

Shares Outstanding, Diluted 263 269 272 273 275 276 275 275 276 276 277 278 277 279 281

Continuing Ops EPS $1.45 $1.55 $1.66 $0.75 $0.30 $0.37 $0.35 $1.77 $0.73 $0.25 $0.53 $0.38 $1.89 $2.00 $2.15

GAAP EPS $1.58 $1.42 $1.66 $0.75 $0.30 $0.34 $0.35 $1.77 $0.73 $0.25 $0.53 $0.38 $1.89 $2.00 $2.15

Dividend $0.84 $0.96 $1.02 $0.27 $0.27 $0.27 $0.27 $1.08 $0.29 $0.29 $0.29 $0.29 $1.16 $1.24 $1.28

Payout Ratio (%) 53% 67% 61% 36% 89% 79% 78% 61% 40% 115% 54% 61% 62% 60%

Source: Company Reports and Baird estimates 10/29/15

Please refer to Appendix - Important Disclosures and Analyst Certification.

Dave Parker 813.274.7620

Jackie Parlin 646.557.3206

Mike Bates 414.765.7054

CMS Energy(CMS-NYSE)


Balance Sheet ($mln) 2011Y 2012Y 2013Y

ASSETS 2011 2012 2013 2014 3Q15 CASH FLOW STATEMENT 2011 2012 2013 2014 2015E 2016E 2017E

Cash 161 93 172 207 150 Net Income $417 $384 $454 $479 $523 $559 $604

Accounts Receivable 928 938 987 1,017 788 Depreciation and Amortization 546 598 628 685 741 804 863

Inventories at average cost 1,187 1,084 881 918 863 Other 112 415 341 315 250 250 250

Deferred taxes 211 190 328 216 153 NWC Changes $94 ($156) ($2) ($32) ($175) $50 $50

Regulatory assets 1 35 40 89 20 Cash Flow from Ops (CFO) 1,169 1,241 1,421 1,447 1,339 1,663 1,767

Prepaid & other 50 53 86 113 97 Capital Expenditures ($882) ($1,227) ($1,325) ($1,577) ($1,600) ($1,600) ($1,400)

Total Current Assets 2,565 2,422 2,526 2,597 2,123 Free Cash Flow (FCF) 287 14 96 (130) (261) 63 367

PP&E Net 9,850 10,471 11,097 12,306 12,850 Acquisitions (N/A)

CWIP 783 1,080 1,149 1,106 1,310 Capex/Depreciation 1.62 2.05 2.11 2.30 2.16 1.99 1.62

Investments 50 57 59 61 0 Dividends ($211) ($252) ($273) ($295) ($321) ($346) ($360)

Regulatory Assets 2,466 2,287 1,530 1,956 1,870 Net Cash Flow (NCF) 76 (238) (177) (425) (582) (283) 6

Notes Receivable 462 521 646 807 950 FCF/Share 1.09 0.05 0.35 (0.47) (0.94) 0.23 1.30

Other 276 293 409 352 349Total Assets 16,452 17,131 17,416 19,185 19,452 Du Pont Formula 2011 2012 2013 2014 LTM

LIABILITIES AND CAPITALIZATION Net Margins (NI/S) 5.9% 6.7% 6.9% 6.8% 7.6%

Current Portion LT Debt 1,057 541 562 540 741 Assets Turnover (S/A) 0.41 0.37 0.38 0.39 0.35

Notes Payable 0 110 170 60 68 Leverage (A/E) 5.51 5.40 5.20 5.14 5.02

Accounts Payable 584 521 595 688 594 Return on Equity 13.1% 13.4% 13.6% 13.6% 13.4%

Deferred Taxes 0 68 0 0 Return on Assets 2.3% 2.4% 2.6% 2.5% 2.6%

Regulatory Liabilities 1,875 2,101 2,215 2,095 2110 ROC (after-tax) 3.7% 4.0% 6.2% 6.7% 4.2%

Postretirement Benefits 1,289 1,451 239 872 847

Asset retirement obligations 254 312 325 340 419 Valuation Measures 2011 2012 2013 2014 LTM

Deferred income taxes 1,035 1,015 1,616 1,682 1980 Historical P/E High 15.4x 16.1x 18.1x 20.9x 17.9x

Other non-current liabiltiies 336 311 306 299 299 Historical P/E Low 11.7x 13.6x 14.8x 14.7x 16.3x

Common stockholders equity 3,028 3,194 3,454 3,670 3902 Historical P/FCF High - current yr 0.1x 1.8x 0.3x -0.3x -0.3x

Preferred stock 0 0 0 0 0 Historical P/FCF Low - current yr 0.1x 1.5x 0.3x -0.2x -0.2x

Long-term Debt 6,040 6,710 7,101 8,016 7903 Enterprise Value (EV) - Equity 5,816 6,548 7,277 9,542 9,168

Consumers LT Debt 4,350 4,360 4,579 5,154 4969 ST+LT Debt 7,097 7,251 7,663 8,556 8,644

Non-controlling interests 44 44 37 37 37 Cash & Equivalents 161 93 172 207 150

Total Liabilities and Capital 16,452 17,131 17,416 19,185 19,452 Total EV 12,752 13,706 14,768 17,891 17,662

Balance Sheet Analysis 2011 2012 2013 2014 3Q15 EBITDA 1,549 1,659 1,769 1,837 1,937

Rate Base 10,519 11,060 11,445 12,336 12,925 EV / EBITDA 8.2x 8.3x 8.3x 9.7x 9.1x

ROE (Rate Base) 10.8% 9.7% 11.3% 11.2% 9.5% EV / EBITDA with Op Leases 8.2x 8.3x 8.3x 9.7x 9.1x

Current Ratio 1.10 1.35 1.30 1.29 1.19

Days Sales Outstanding (DSO) 52.1 54.8 54.9 42.9

EBIT/Interest Expense 2.42 2.73 2.87 2.83 2.91

Debt/Total Cap 71% 70% 69% 70% 69%

Debt/Total Cap (Incl Op Leases) 71% 70% 69% 70% 69%

Book Value/Share 11.50 11.89 12.71 13.36 14.09

Source: Company Reports and Baird estimates

Please refer to Appendix - Important Disclosures and Analyst Certification.

CMS Energy(CMS-NYSE)


Appendix - Important Disclosures and Analyst Certification

Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q315

20

25

30

35

40

2013 2014 2015 2016

05/22/14I:O:$35

01/29/15O:$38

Rating and Price Target History for: CMS Energy (CMS) as of 10-29-2015

Created by BlueMatrix

1 Robert W. Baird & Co. Incorporated makes a market in the securities of CMS.

Robert W. Baird & Co. Incorporated and/or its affiliates expect to receive or intend to seek investment banking related compensationfrom the company or companies mentioned in this report within the next three months.Robert W. Baird & Co. Incorporated may not be licensed to execute transactions in all foreign listed securities directly. Transactions inforeign listed securities may be prohibited for residents of the United States. Please contact a Baird representative for more information.Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity marketover the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months.Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12months.Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis onsafety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue andearnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Companycharacteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H -Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Companycharacteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and pricevolatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility and risk.Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changingmarket dynamics, high leverage, extreme price volatility and unknown competitive challenges.Valuation, Ratings and Risks. The recommendation and price target contained within this report are based on a time horizon of 12months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by asubjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methods may beused to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer group comparisons,and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specific informationregarding the price target and recommendation is provided in the text of our most recent research report.Distribution of Investment Ratings. As of September 30, 2015, Baird U.S. Equity Research covered 737 companies, with 51% ratedOutperform/Buy, 48% rated Neutral/Hold and 1% rated Underperform/Sell. Within these rating categories, 13% of Outperform/Buy-rated,6% of Neutral/Hold-rated and 1% rated Underperform/Sell companies have compensated Baird for investment banking services in thepast 12 months and/or Baird managed or co-managed a public offering of securities for these companies in the past 12 months.Analyst Compensation. Analyst compensation is based on: 1) the correlation between the analyst's recommendations and stock priceperformance; 2) ratings and direct feedback from our investing clients, our institutional and retail sales force (as applicable) and fromindependent rating services; 3) the analyst's productivity, including the quality of the analyst's research and the analyst's contribution tothe growth and development of our overall research effort and 4) compliance with all of Robert W. Baird’s internal policies andprocedures. This compensation criteria and actual compensation is reviewed and approved on an annual basis by Baird's ResearchOversight Committee.Analyst compensation is derived from all revenue sources of the firm, including revenues from investment banking. Baird does notcompensate research analysts based on specific investment banking transactions.A complete listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can be accessed athttp://www.rwbaird.com/research-insights/research/coverage/research-disclosure.aspx .



http://www.rwbaird.com/research-insights/research/coverage/research-disclosure.aspx

You can also call 1-800-792-2473 or write: Robert W. Baird & Co. Incorporated, Equity Research, 777 E. Wisconsin Avenue, Milwaukee,WI 53202.Analyst Certification. The senior research analyst(s) certifies that the views expressed in this research report and/or financial modelaccurately reflect such senior analyst's personal views about the subject securities or issuers and that no part of his or her compensationwas, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report.DisclaimersBaird prohibits analysts from owning stock in companies they cover.This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflectour judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but wecannot guarantee the accuracy.ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUESTThe Dow Jones Industrial Average, S&P 500, S&P 400 and Russell 2000 are unmanaged common stock indices used to measure andreport performance of various sectors of the stock market; direct investment in indices is not available.Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United States Securitiesand Exchange Commission, FINRA, and various other self-regulatory organizations and those laws and regulations may differ fromAustralian laws. This report has been prepared in accordance with the laws and regulations governing United States broker-dealers andnot Australian laws.Copyright 2015 Robert W. Baird & Co. IncorporatedOther DisclosuresThe information and rating included in this report represent the Analyst’s long-term (12 month) view as described above. The researchanalyst(s) named in this report may at times, discuss, at the request of our clients, including Robert W. Baird & Co. salespersons andtraders, or may have discussed in this report, certain trading strategies based on catalysts or events that may have a near-term impacton the market price of the equity securities discussed in this report. These trading strategies may differ from the analysts’ published pricetarget or rating for such securities. Any such trading strategies are distinct from and do not affect the analysts’ fundamental long-term (12month) rating for such securities, as described above. In addition, Robert W. Baird & Co. Incorporated and/or its affiliates (Baird) mayprovide to certain clients additional or research supplemental products or services, such as outlooks, commentaries and other detailedanalyses, which focus on covered stocks, companies, industries or sectors. Not all clients who receive our standard company-specificresearch reports are eligible to receive these additional or supplemental products or services. Baird determines in its sole discretion theclients who will receive additional or supplemental products or services, in light of various factors including the size and scope of theclient relationships. These additional or supplemental products or services may feature different analytical or research techniques andinformation than are contained in Baird’s standard research reports. Any ratings and recommendations contained in such additional orresearch supplemental products are consistent with the Analyst’s long-term ratings and recommendations contained in more broadlydisseminated standard research reports.United Kingdom (“UK”) disclosure requirements for the purpose of distributing this research into the UK and other countriesfor which Robert W. Baird Limited (“RWBL”) holds a MiFID passport.This material is distributed in the UK and the European Economic Area (“EEA”) by RWBL, which has an office at Finsbury Circus House,15 Finsbury Circus, London EC2M 7EB and is authorized and regulated by the Financial Conduct Authority (“FCA”).For the purposes of the FCA requirements, this investment research report is classified as investment research and is objective.This material is only directed at and is only made available to persons in the EEA who would satisfy the criteria of being "Professional"investors under MiFID and to persons in the UK falling within articles 19, 38, 47, and 49 of the Financial Services and Markets Act of2000 (Financial Promotion) Order 2005 (all such persons being referred to as “relevant persons”). Accordingly, this document is intendedonly for persons regarded as investment professionals (or equivalent) and is not to be distributed to or passed onto any other person(such as persons who would be classified as Retail clients under MiFID).Robert W. Baird & Co. Incorporated and RWBL have in place organizational and administrative arrangements for the disclosure andavoidance of conflicts of interest with respect to research recommendations.This material is not intended for persons in jurisdictions where the distribution or publication of this research report is not permitted underthe applicable laws or regulations of such jurisdiction.Investment involves risk. The price of securities may fluctuate and past performance is not indicative of future results. Anyrecommendation contained in the research report does not have regard to the specific investment objectives, financial situation and theparticular needs of any individuals. You are advised to exercise caution in relation to the research report. If you are in any doubt aboutany of the contents of this document, you should obtain independent professional advice.RWBL is exempt from the requirement to hold an Australian financial services license. RWBL is regulated by the FCA under UK laws,which may differ from Australian laws. This document has been prepared in accordance with FCA requirements and not Australian laws.Dividend Yield. As used in this report, the term “dividend yield” refers, on a percentage basis, to the historical distributions made by theissuer relative to its current market price. Such distributions are not guaranteed, may be modified at the issuer’s discretion, may exceedoperating cash flow, subsidized by borrowed funds or include a return of investment principal.

Ask the analyst a question Click here to unsubscribe



mailto:[email protected]

mailto:[email protected]?subject=Remove me from your mailing list for CMS/Parker

cms energy (cms)

Documents