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NiSource (NI) Benefits from Investments, Debt Levels a Woe


NiSource Inc. NI continues its strategic investment plans to strengthen infrastructure and expand operations. The company plans to spend $1.6–$1.8 billion annually in the 2018–2020 time period. However, its debt level is a concern amid rising interest rate environment.

Recent Earnings

NiSource's earnings and total revenue in the first quarter were higher than the Zacks Consensus Estimate. Its strong performance was primarily attributable to continued execution of its infrastructure investment strategy.

Factors to Consider

NiSource has identified long-term infrastructure investments worth $30 billion, over 90% of which is allocated to regulated pipes and wires. Continued investments will allow the company to deliver its targeted earnings and dividend growth of 5–7% through 2020.

The company’s 100-mile Reynolds to Topeka and 65-mile Greentown to Reynolds transmission project are under schedule. Both the projects are expected to come online during the second half of 2018 and further increase the reliability of its services.

NiSource has a 100% regulated utility business model. Its planned regulated investments will improve reliability and safety of its services, and provide efficient natural gas services to its expanding customer base.

However, NiSource’s operations are spread over a wide geographical area and are influenced by varied and extreme weather conditions. Warmer winter in the first quarter adversely impacted the results of the company.

NiSource’s debt-to-capital level ratio is 57.1%, much higher than the S&P 500 level of 41.94%.The long-term debts of the company at the end of the first quarter were $5.59 billion, lower than the 2016-end levels of $6.1 billion. If the company’s investment grade credit rating drops from the present level, it could substantially increase the cost of borrowings of the company amid the rising interest rates.

Price Movement

Shares of NiSource gained 11.9% in the last six months compared with the 8.1% gain for the Zacks categorized Utility – Electric Power industry.

The company’s consistent investment to strengthen its existing infrastructure and focus on clean energy is going to drive performance.

Zacks Rank & Other Stocks to Consider

NiSource currently carries a Zacks Rank #2 (Buy). Other stocks in the same industry are CenterPoint Energy Inc. CNP, Unitil Corp. UTL and Avangrid Inc. AGR. All these stocks also carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CenterPoint Energy reported a positive earnings surprise of 2.78% in the first quarter. Its 2017 Zacks Consensus Estimate moved up 1.6% in the last 90 days to $1.29.

Unitil Corp. reported a positive earnings surprise of 2.33% in the first quarter. Its 2017 Zacks Consensus Estimate moved up 1.0% in the last 90 days to $2.09.

Avangrid reported a positive earnings surprise of 7.35% in the first quarter. Its 2017 Zacks Consensus Estimate moved up 0.5% in the last 60 days to $2.21.

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