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How NiSource Is Positioned for Long-Term Growth

Vineet Kulkarni - Author
By

Sep. 8 2016, Updated 12:07 p.m. ET

NiSource: A utility with a difference

NiSource (NI) is mainly a gas utility holding company with mostly regulated operations. It also operates in electric distribution. The $7.7 billion NiSource exited its pipeline business Columbia Pipeline Group last year.

Among utility companies, NiSource saw one of the strongest rallies, with a handsome gain of nearly 40%–45% in the first half of the year. However, utilities seem to be losing their sheen lately. NiSource is no exception and has lost 11% in the last couple of months.

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Utilities and their midstream exposure

Many midsize utilities with heavy regulated gas distribution have become large utilities’ acquisition targets in the last few years. With significant gas operations, NiSource is part of this group. Electric sales are growing at a snail’s pace, forcing utilities to expand in the gas domain. NiSource’s valuation has increased drastically in the last few years, thanks to its diversified and stable earnings growth. The stability may be due to the separation of its pipeline business.

On the contrary, peer CenterPoint Energy (CNP) maintained its interest in its master limited partnerships. Among utilities, CenterPoint is one of the worst performers, due to its 55.4% stake in Enable Midstream Partners (ENBL). NextEra Energy (NEE) and Dominion Resources (D) have also kept their interests in their yieldcos.

Although NiSource’s earnings growth has been nearly halved due to its pipeline business spin-off, it could see its earnings stabilize in the near future. We’ll focus on NiSource’s financial, operational, and market performance in this series and look at its potential for long-term growth.

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