We recently compiled a list of 8 Most Profitable Utility Stocks To Invest In. In this article, we will look at where CMS Energy (NYSE:CMS) ranks among the most profitable utility stocks.

Utilities to Experience Significant Growth

According to Research and Markets, the global utility market was valued at $6.89 trillion in 2024 and is projected to reach $8.83 trillion by 2028, growing at a CAGR of 6.4%. The market’s expansion is expected to be driven by several factors, including population growth, economic development, investments in renewable energy, and a rise in utility mergers and acquisitions. Key trends in the sector include a focus on Power Purchase Agreements (PPAs), increased funding for solar energy battery storage, and investments in technologies such as smart grids and smart meters.

A Stable and Secure Investment

Keith Meister, Chief Investment Officer at Corvex Management, in an interview on CNBC, shared his perspective on the utility sector. Meister pointed out that utilities are well-regulated businesses that have historically experienced flat electricity load growth in the U.S. from 2013 to 2023. However, new technologies and regulatory changes, such as the Inflation Reduction Act (I.R.A.) and advances in Artificial Intelligence (A.I.), have boosted the sector’s projected growth rate to 3%. This growth is driven by increasing electricity demand, particularly as renewable energy sources become more widely adopted and the need for power to support technological advancements rises.

Meister believes the U.S. has created strong capital markets and incentives for investment in the utility sector, making it a favorable investment in the current cycle. He noted that a few years ago, utilities were trading at 20 times the market, but now they are more reasonably priced at two times the market. This drop in valuation makes utilities an appealing investment opportunity, especially considering their guaranteed income and solid dividends.

Meister highlighted the sector’s appealing characteristics, such as guaranteed income and good dividends, which make utilities a strong investment option. Investors don’t need to rely on multiple expansions to achieve 10% growth from these stocks, and any additional earnings growth would be a bonus. In a market where growth and returns are increasingly uncertain, utilities offer a relatively stable and secure investment opportunity.

The global utilities market is poised for significant growth, driven by a combination of factors including population growth, economic development, and increasing investments in renewable energy. The global utilities market is an attractive opportunity for investors looking for a stable income and return on investment. With that in context, let’s take a look at the 8 most profitable utility stocks to invest in.

Our Methodology

To compile our list of the 8 most profitable utility stocks to invest in, we used the Finviz and Yahoo stock screeners to compile an initial list of the 20 largest utility companies by market cap. From that list, we narrowed our choices to companies with positive TTM net income and 5-year net income growth informed by reputable sources, including SeekingAlpha, which provided insights into 5-year growth rates, and Macrotrends, which supplied information on trailing twelve-month (TTM) net income. Then we sorted the stocks in ascending order, according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024.

Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

CMS Energy (NYSE:CMS)  

Number of Hedge Fund Holders: 35  

TTM Net Income: $960 Million  

5-Year Net Income CAGR: 10.72%

CMS Energy (NYSE:CMS) is a Michigan-based utility company that provides natural gas and electricity through its principal subsidiary, Consumers Energy. CMS Energy (NYSE:CMS) is Michigan’s largest utility company, serving 68% of state residents offering both electric and gas services. CMS Energy (NYSE:CMS) generates 54% of its power from gas, 21% from coal, 13% from renewables, and 13% from purchased power.

CMS Energy (NYSE:CMS) is a strong and stable company with a proven track record of delivering industry-leading financial performance. For over 21 years, the company has consistently executed its investment thesis, which focuses on making necessary and important investments in its system while maintaining customer affordability. This approach has allowed the company to deliver 6% to 8% adjusted earnings growth, making it an attractive investment opportunity for investors.

One of the key drivers of CMS Energy’s (NYSE:CMS) success is its strong regulatory environment. Michigan’s regulatory framework provides a supportive environment for the company to make investments in its electric and gas systems, making them safer, more reliable, and resilient. The company’s 10-month forward-looking rate cases, financial and fuel recovery mechanisms, and increased energy waste reduction incentives are just a few examples of the attributes that make Michigan’s regulatory environment one of the best in the country. This strong regulatory environment provides CMS Energy (NYSE:CMS) with a solid foundation for long-term growth and profitability.

CMS Energy’s (NYSE:CMS) financial performance has been strong in the first half of 2024, with adjusted earnings per share of $1.63, up $0.18 versus the first half of 2023. The company’s rate relief, net of investment costs, has been a key driver of this performance, with constructive outcomes achieved in its electric rate order and gas rate case settlement. Additionally, the company’s solid operational performance at NorthStar and higher weather-normalized electric sales have contributed to its positive results. With a strong regulatory environment, a commitment to customer affordability, and a solid financial performance, CMS Energy (NYSE:CMS) is well-positioned for long-term growth and profitability.

Looking ahead, CMS Energy’s (NYSE:CMS) guidance for 2024 remains strong, with adjusted earnings per share expected to be in the range of $3.29 to $3.35. Analysts forecast the company to grow its earnings by 6.83% this year. The company’s financing plan is also on track, with a modest increase in planned debt issuances at the utility to rebalance the rate-making capital structure. With no planned long-term financings in 2024, CMS Energy (NYSE:CMS) is well-positioned to deliver on its financial objectives and continue its track record of industry-leading performance.

Overall CMS ranks 8th on our list of most profitable utility stocks to invest in. While we acknowledge the potential of CMS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CMS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure. None. This article is originally published on Insider Monkey.