PNM WACC - Weighted Average Cost of Capital
The WACC of PNM Resources Inc (PNM) is 5.1%.
| Range | Selected | |
| Cost of equity | 5.8% - 7.3% | 6.55% |
| Tax rate | 12.9% - 15.2% | 14.05% |
| Cost of debt | 4.0% - 5.2% | 4.6% |
| WACC | 4.5% - 5.7% | 5.1% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.41 | 0.43 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.8% | 7.3% |
| Tax rate | 12.9% | 15.2% |
| Debt/Equity ratio | 1.28 | 1.28 |
| Cost of debt | 4.0% | 5.2% |
| After-tax WACC | 4.5% | 5.7% |
| Selected WACC | 5.1% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| PNM | PNM Resources Inc | 1.28 | -0.06 | -0.03 |
| ALE | ALLETE Inc | 0.47 | 0.06 | 0.04 |
| CUP.U.TO | Caribbean Utilities Company Ltd | 0.74 | 0.24 | 0.15 |
| HE | Hawaiian Electric Industries Inc | 1.8 | -0.07 | -0.03 |
| IDA | Idacorp Inc | 0.48 | 0.11 | 0.08 |
| MGEE | MGE Energy Inc | 0.24 | 0.41 | 0.34 |
| OGE | OGE Energy Corp | 0.62 | 0.36 | 0.23 |
| OTTR | Otter Tail Corp | 0.31 | 0.45 | 0.36 |
| POR | Portland General Electric Co | 1.07 | 0.14 | 0.07 |
| SPKE | Spark Energy Inc | 0.25 | 1.09 | 0.9 |
| Low | High | |
| Unlevered beta | 0.08 | 0.18 |
| Relevered beta | 0.12 | 0.15 |
| Adjusted relevered beta | 0.41 | 0.43 |
PNM's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for PNM:
cost_of_equity (6.55%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.41) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.