CMS Energy (CMS) May Beat Q2 Earnings: Stock To Gain?

We expect CMS Energy Corp. (NYSE:CMS) to beat expectations when it reports second-quarter 2016 results on Jul 28, before the opening bell. Last quarter, the company reported a negative earnings surprise of 13.24%. Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that CMS Energy is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates and CMS Energy has the right mix.

Zacks ESP: The Earnings ESP which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +11.43%. This is because the Most Accurate Estimate stands at 39 cents, while the Zacks Consensus Estimate is pegged at 35 cents. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: CMS Energy currently carries a Zacks Rank #2. The combination of CMS Energy’s favorable Zacks Rank and positive ESP makes us reasonably confident of a positive surprise this season.

Conversely, we caution against Sell-rated stocks (#4 or #5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

CMS ENERGY Price and EPS Surprise

Factors to Consider

CMS Energy continues to make investments in enhancing service reliability and effectively meeting customer demand.

The company plans to spend $17 billion in the 2016–2025 time frame, the majority of which will be directed toward infrastructure development projects. These initiatives will enable the company to provide reliable services to its customers and achieve long-term EPS growth of 5–7% in 2016 and 6–8% in 2017.

Capital investments have helped the company reduce operation and maintenance costs significantly. Successful execution of cost saving initiatives should continue to boost its bottom line in the to-be-reported quarter as well. Going ahead, CMS Energy expects to achieve cost reduction of another 10% at least by 2018.

Moreover, the company's sustained efforts to retire its coal-fired plants and expand the renewable portfolio are impressive. These efforts will not only boost its renewable energy share above 10%, as mandated by the 2008 energy law, but will also ensure higher generation of environment-friendly power.

Other Stocks to Consider

CMS Energy is not the only company looking up this earnings season. We see likely earnings beats coming from these companies as well:

Avista Corp. (NYSE:AVA) has an Earnings ESP of +2.33% and a Zacks Rank #2. The company is expected to release second-quarter 2016 results on Aug 3, before the market opens.

NRG Energy, Inc. (NYSE:NRG) has an Earnings ESP of +53.33% and a Zacks Rank #2. The company is expected to release second-quarter 2016 results on Aug 9, before the market opens.

Pattern Energy Group, Inc. (NASDAQ:PEGI) has an Earnings ESP of +100.00% and a Zacks Rank #2. The company is expected to release second-quarter 2016 results on Aug 8, before the market opens.