WEC Energy Group (WEC)

Total return at 5 years: 3.8%/year = -0.4% appreciation + 4.2% dividend. The target price ($109) is ex-dividend; the $23 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($111) and the other below.

Today — expensive, no margin of safety: at $111 trades ~3.1% above its value discounted to today (~$108); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($109) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$69.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($111) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-0.6%/year) than we project (7.1%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.6 bn of owner earnings in year 5 (vs ~$2.4 bn of our base case). It recalculates if the DCF assumptions are edited.

A regulated utility is valued on P/E over adjusted earnings (equity-level): the value sits in the regulated base (rate base), which grows with capex at an allowed ROE. GAAP can be depressed by the mark-to-market of hedges → the adjusted figure is used. It returns capital via dividend (a dividend aristocrat); it may issue some equity to fund capex. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

WEC Energy Group is valued at the equity level (P/E on net income attributable to common shareholders), like every regulated utility. Year 0 is the TTM as of Jun 30, 2026 ($1.6915bn), taken from "NetIncomeLossAvailableToCommonStockholdersBasic" — already net of preferred dividends. Year 1 anchors to reaffirmed 2026 EPS guidance ($5.51-$5.61, midpoint $5.56) from the Jul 29, 2026 8-K, which together with the actual H1 2026 result (diluted EPS $3.36) implies ~8.2% growth for the first year of the rolling window, decaying smoothly to 6.0% by year 5 — at the top of the 3-6% band for a mature utility, sustained by the $37.5bn 2026-2030 capital plan ($33.4bn across the regulated utilities plus $4.1bn from WEC's stake in ATC). Shares grow ~2.5%/year across the three scenarios (the same path, per §6): the company funds part of its capital plan through ongoing common stock issuance (dilution), not buybacks — a revealed trend from 316.1M diluted shares in FY2022 to 328.9M in the most recent quarter. The dividend starts at the declared current rate ($3.81 annualized, following the 6.7% increase in January 2026) and grows ~6.5% annually in the base case, in line with the company's historical pace (FY22-FY25: +7.2%, +7.1%, +6.9%). The exit multiple (17.0x base) sits in the upper half of the [15x,18x] band for the utility archetype, reflecting a return on capital (~12.2% average ROE) moderately above the 10% bar and terminal growth at the top of the typical range, tempered by growth concentration in a small number of data-center customers (VLC) still without a firmly approved tariff.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $109 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $111, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $109 in 5 years plus $23 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $108. Against the current market price ($111), the margin of safety is -3.1% (trades above the maximum → a premium is paid) and the total return at that price would be 3.8% annually.

• Multiple within band. 17.0x base-case P/E, in the upper half of the [15x,18x] range for the utility archetype.
• Moderate total return. +4% annually estimated in the base case, split between the dividend yield and modest price appreciation.
• Limited margin of safety. No margin of safety: at this price capital is preserved, but it is not bought below its value.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital above the bar. Average ROE ~12.2% on common equity, above the 10% bar though without a wide margin.
• Consistent but tight cash generation. TTM operating cash flow of $3.57bn, though reported FCF is barely positive ($0.33bn) due to capex from the plan.
• Low, potentially non-recurring effective tax rate. The TTM effective rate of 7.1% is below the recent historical average (~12-13%); it could normalize upward.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

WEC's economic driver is the regulated asset base (net plant) multiplied by the return on capital authorized by each regulator: every dollar of approved capex translates, with the regulatory lag inherent to a rate case, into future revenue and earnings. The jump in capex from FY2024 to FY2025 (+58.2%) anticipates the pace of the 2026-2030 plan and is the best leading indicator of net income growth, more reliable than reported revenue, which is distorted by pass-through fuel cost and weather.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Robust capital plan. $37.5bn 2026-2030 in regulated and transmission investment, with reaffirmed EPS guidance.
• Growth almost entirely organic. Minor recent acquisitions (Hardin Solar, $406.1M in 2025); growth comes almost entirely from own capex.
• Regulatory lag. The return on invested capital depends on regulators approving rates in a timely manner; there has already been a partial cost disallowance in Illinois.

• Exclusive regulated franchise. Monopoly service within the territory, with no direct competition for captive customers.
• Revenue tied to fuel costs. A large share of year-over-year revenue variation reflects fuel pass-through, not clean underlying growth.
• Single-segment concentration. Wisconsin contributes 71% of consolidated operating income; the rest are smaller-scale pieces.
• Structural data-center demand. Negotiations with VLC customers could add rate-base growth above guidance, though without a firmly approved tariff yet.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Regulated return (earned vs allowed ROE)Earns 12.2% vs allowed 10.0%
• !Value creation (allowed ROE − 10% bar)-0.0pp
• !Leverage (net debt / EBITDA)5.9x · Investment grade assumed from the company's continued access to debt and equity markets; the specific rating is not disclosed in the filings incorporated into this record.
• ✓Predictability (% regulated + rate-base growth)84% regulated · rate base +$7.5 bn/year

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Elevated leverage, typical of the sector. Net debt/EBITDA ~5.9x, consistent with a utility in a high-capex phase.
• Regulatory capital structure. Common equity ratio ~51.5%, within the structures approved (50-53%) by regulators.
• Credit rating not verified in filings. Investment grade assumed from continued access to debt and equity markets; the specific rating is not disclosed in the incorporated filings.
• Minimal cash. Only $50.0M of cash at quarter-end — typical of a utility that manages liquidity through credit lines, not excess cash.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Executive continuity. Scott Lauber was CFO before becoming CEO in 2023, providing continuity to prior financial discipline.
• Low insider ownership. Directors and executives as a group own just 0.46% of shares — no meaningful skin in the game.
• Funding via share issuance. The capital plan is funded in part through ongoing stock issuance, diluting existing shareholders by ~2.5%/year.

• There is no evidence of motivated sellers: there is no collapse in the stock suggesting panic or a specific negative catalyst.
• The market appears to pay a reasonable multiple for the visibility of the regulated capital plan and reaffirmed 2026 EPS guidance, with no obvious perception-reality gap.
• No clear source of missing buyers or motivated sellers is identified: the current price reasonably reflects the value of a solid but not exceptional regulated business.

No margin of safety: at this price capital is preserved, but it is not bought below its value. With no clear edge identified, the expected return comes mainly from rate-base growth and the growing dividend, not from a multiple re-rating.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -2%/year (-10% total): the margin of safety protects the downside. The bull (+7%/year, +42% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Regulatory lag. Profitability depends on regulators approving rates that recover costs and a reasonable ROE; there has already been a cost disallowance in Illinois ($205.0M in 2025).
• Concentration in VLC customers. Significant infrastructure investment for a small number of data-center customers before a firmly approved tariff is in place.
• Environmental compliance and coal retirement. Rising compliance costs and a federal executive order that could force certain coal plants to remain operational despite the retirement plan.
• Capital plan execution. Risk of cost overruns and delays on a $37.5bn plan, with possible regulatory disallowance of the excess.
• Cybersecurity. Interconnected critical infrastructure exposed to attack attempts, with remediation costs not always recoverable in rates.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROE 12% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 7% at a PEG of 3.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -1% vs our 7%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +3%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -1%, within what we project (7%) — the story squares with the numbers.