TXNM Energy: Navigating Challenges to Maintain 2025 Earnings Momentum

TXNM Energy (NYSE: TXNM) has reaffirmed its 2025 full-year earnings guidance of $2.74–$2.84 per diluted share despite a 54% year-over-year drop in Q1 earnings. This decision reflects confidence in its long-term strategy, anchored by strategic capital investments, regulatory tailwinds, and the rapid expansion of data center demand in Texas. However, the path to meeting its targets is not without hurdles, particularly in New Mexico, where PNM’s operational challenges and regulatory delays pose risks.

The Case for Confidence: Drivers of Growth

The reaffirmation hinges on three pillars: TNMP’s (Texas utility) robust data center-driven revenue growth, PNM’s regulatory progress, and a disciplined capital plan.

1. TNMP: The Engine of Growth

TNMP’s performance in Q1 2025 was a bright spot, with ongoing EPS rising to $0.24 from $0.16 in the prior year. This growth is fueled by:
- Data Center Demand Surge: TNMP’s system peak hit a record 3,158 MW in February 2025, a 22% year-over-year increase, driven by 670 MW of operational data center load. Interconnection requests rose 6% in Q1, signaling strong demand.
- Rate Recovery Mechanisms: The Distribution Cost Recovery Factor (DCRF) and Transmission Cost of Service (TCOS) enable timely cost recovery, supporting earnings despite rising capital expenditures.
- Capital Investments: A $7.8 billion capital plan through 2029 will expand TNMP’s rate base at a 17.3% CAGR, with projects like the $355 million Permian Basin Reliability Study and $566 million System Resiliency Plan.

2. PNM: Regulatory Progress Amid Struggles

While PNM’s Q1 earnings dropped to $0.09 from $0.38 due to higher costs and margin pressures, its regulatory progress offers hope:
- Rate Case Approval: An unopposed stipulation for its 2025 rate request is advancing, with potential implementation by July 2025. This could stabilize margins by recovering costs tied to renewable investments.
- Renewable Transition: PNM aims to reach 73% renewables and storage by 2028 (up from 65%), aligning with New Mexico’s clean energy mandates and reducing reliance on volatile fossil fuel markets.

3. Seasonal Earnings Dynamics

Q1’s weak performance is mitigated by TXNM’s seasonal pattern, where 7% of annual earnings are generated in Q1, versus 55% in peak summer demand (Q3). This seasonality, combined with TNMP’s scalability, justifies confidence in the full-year guidance.

The Risks: Challenges Ahead

Despite the reaffirmed guidance, risks remain:
- PNM’s Execution: Higher interest expenses, regulatory delays, and rising insurance costs could strain margins further.
- Market Volatility: TXNM’s unrealized investment losses ($8.2 million in Q1) highlight exposure to financial markets.
- Debt and Capital Costs: With $5.8 billion in debt, the company must balance growth investments with affordability for customers.

Investor Takeaways and the Investment Thesis

TXNM’s reaffirmation is a vote of confidence in its ability to leverage Texas’s data center boom and regulatory frameworks to offset New Mexico’s headwinds. Key positives include:
- Dividend Resilience: A 5.2% dividend hike to $1.63 per share reflects confidence in cash flow stability.
- Stock Performance: Despite Q1’s miss, TXNM’s stock remains near its 52-week high of $55.50, with a dividend yield of ~2.9%.
- Long-Term Growth: The 7%–9% EPS growth target through 2029 is supported by a 12.4% consolidated rate base CAGR, driven by TNMP’s infrastructure build-out.

Conclusion: A Balanced View of TXNM’s Outlook

TXNM’s reaffirmed guidance is justified by its strategic focus on TNMP’s data center growth and PNM’s regulatory progress, but investors must weigh these positives against execution risks. The stock’s proximity to its 52-week high suggests markets are pricing in a resolution to PNM’s challenges.

For long-term investors, TXNM offers a compelling mix of regulated utility stability and growth in high-demand sectors. However, the stock’s sensitivity to PNM’s performance and regulatory outcomes means near-term volatility is likely. Investors should monitor Q3 results—the critical earnings quarter—to gauge whether TNMP’s growth can offset PNM’s struggles and validate the full-year guidance.

In a sector where resilience and adaptability matter most, TXNM’s disciplined capital allocation and regulatory foresight position it to navigate challenges and sustain momentum toward its 2025 targets.