TXNM ENERGY INC (TXNM) stock intrinsic value fair value estimate & owner earnings analysis

TXNM Energy (formerly PNM Resources) owns two regulated electric utilities: PNM, serving most of New Mexico, and TNMP, serving fast-growing parts of the Texas Panhandle, Permian Basin and Gulf Coast. Both operate as regulated monopolies -- customers have no alternative provider, and regulators set the prices these utilities can charge in exchange for approving how much the utilities can invest and earn on that investment. Right now the company is in the middle of a very large, multi-year construction program: roughly $6.8 billion of planned spending from 2024 through 2028. This money is going toward replacing generation lost when the coal-fired San Juan plant was retired, building solar and battery storage (including a large contract to supply a Meta data center in PNM's New Mexico territory), and expanding the power grid in Texas to keep up with rapid Permian Basin oil-and-gas and data-center electricity demand. This spending is running well ahead of the cash the business currently generates, and the gap has been filled by continuing to issue new debt and new shares -- the share count has grown by roughly a quarter since 2020. Because of this, the cash-based measure of profit used in this analysis has been negative in most of the last several years, even after adding back non-cash charges like depreciation. That is not unusual for a utility in an active, regulator-approved building phase: money spent on new plant becomes part of the base on which the company is allowed to earn a return for decades, so today's spending is expected to convert into higher profits and dividends later, even though it depresses cash flow now. The flip side is real, too -- every dollar funded by issuing new shares dilutes existing owners, and that dilution has to be earned back. The base case assumes construction spending continues near its current pace for roughly the next two years, in line with the company's own published plan, then gradually eases as the specific projects driving it -- generation replacement, the data-center buildout, and priority grid upgrades -- are substantially complete, most of them targeted for 2025-2026. Revenue is assumed to keep growing at a few percent a year, helped by Texas's frequent, formula-based mechanisms for recovering grid investment (New Mexico's process is slower and less certain) and continued industrial and data-center demand growth in Texas. On this path, per-share owner earnings gradually turn positive by the second half of the coming decade, and the shares work out to roughly $37 on a per-share basis today. The bear case reflects risks visible in the company's own filings: New Mexico regulators have a history of disallowing recovery of costs tied to the coal-plant transition -- one year alone saw over $150 million in such disallowances -- and a repeat of that pattern, combined with construction spending that does not moderate as assumed and continued heavy share issuance, would mean the dilution and cash burn outpace the growth in regulated earning power for years. The company also carries real, and only partially insurable, wildfire liability exposure in its dry New Mexico and Texas service territories, a risk regulated utilities in the western U.S. have faced acutely in recent years. Combining these risks, this case values the shares at roughly negative $7 -- meaning the company's obligations and dilution risk could outweigh the value generated by the business over the period modeled. The bull case assumes the same construction program is recovered smoothly in rates, spending moderates a bit sooner, and Texas -- which the company has been deliberately shifting more of its investment toward because of its friendlier rate-recovery rules -- keeps growing to represent more than half of the combined business, as it already does. Under that path, the shares could be worth roughly $99. One accounting judgment worth noting: depreciation, impairments and other non-cash charges are added back in full when computing the profit figure used here, which is standard, but a meaningful share of this company's spending is really growth investment in a still-expanding grid rather than upkeep of what already exists -- that distinction was built into the growth assumptions above rather than into the profit figure itself. Finally, the two most recent fiscal years' figures rely on an estimate because the full detailed cash-flow breakdown for those years was not available in the source material used; the true figures could differ modestly once complete filings are reviewed.