NiSource Earnings: Executing Growth Plan After Finalizing Minority Interest Sale

We are reaffirming our $33 fair value estimate for NiSource NI after the company reported $0.11 per share of weather-adjusted operating earnings in the second quarter, down from $0.12 in the second quarter of 2022. First-half earnings are up 1% and on track to meet our full-year expectations for 7% growth given the large revenue step-ups that will take effect in the second half of the year. We are reaffirming our narrow moat rating.

NiSource is one of our top utilities picks, trading at a 17% discount to our fair value estimate as of Aug. 1. We think it has better regulation and more long-term investment opportunities than most other utilities relative to its size. The stock’s 3.6% dividend yield and our 7% annual earnings growth outlook for the next five years offer investors what we consider an attractive total return.

Management reaffirmed its 6%-8% annual earnings growth rate target through 2027 and suggested EPS this year will be at the high end of its $1.54-$1.60 guidance range, up from the $1.50-$1.57 range it initiated in November. These are both in line with our outlook.

A series of constructive regulatory outcomes, notably a $291.8 million rate increase settlement in its largest service territory, Indiana, have contributed to the upside. Other approved and anticipated rate increases in Maryland, Virginia, and Ohio give us high confidence that NiSource can achieve 7% earnings growth during at least the next two years.

Constructive regulation also supports NiSource’s $15 billion capital investment plan during the next five years, setting a path for 6%-8% annual earnings and dividend growth beyond 2024. Support for renewable energy investments, particularly in Indiana, is a key piece of that long-term growth.

We expect NiSource to close its $2.15 billion minority interest sale of its Indiana utility by year-end, eliminating most financing needs in 2024. The premium deal price led us to raise our fair value estimate by $1 per share in June.