CMS: Back from bankruptcy

"The road back from near bankruptcy in 2002 for CMS Energy (NYSE: CMS) has been a rocky one," says Roger Conrad, Here's an update from his specialty service, The Utility Forecaster.

"From Three Mile Island to the Enron meltdown, utilities have always recovered from disaster by cutting debt and operating risk and repairing regulatory relations.

"Last fall, the shares of CMS Energy -- our latest featured growth stock -- plunged from high teens to single digits on recession worries in embattled Michigan.

"Ironically, CMS’ underlying business is healthier than at any time since the late 1990s. Fueled by regulator-sanctioned infrastructure investment, 2008 earnings beat targets and stayed on track for 6 to 8% annual growth. The company also slashed debt interest by 10.5% and boosted its distribution 38.9%.

"An upcoming rate case in Michigan will test utility/regulator relations. CMS has asked for $215 million (11%) to finance new power lines, cut pollution and install advanced. Under state law, the boost went into effect in May.

"Regulators will likely trim the request in their final ruling, mandatory by November 2009. But they’ve consistently supported utility spending, including a planned $6.3 billion over the next five years.

"And in contrast to neighboring DTE Energy, CMS’ income is only 3% from the auto industry, offset by rising sales to alternative energy manufacturers.

"Despite a 17% jump this year, CMS shares still sell for barely book value and 9.6 times the lowest 2009 Wall Street estimate--hefty risk is already priced in. Buy CMS Energy up to 12 for a potential run to the low 20s over the next 12 to 18 months."