NiSource Earnings: Top-Tier Regulation Supporting Growth in 2023

We are reaffirming our $32 fair value estimate for NiSource NI after the company announced $0.77 per share of operating earnings in the first quarter, up from $0.75 in the first quarter of 2022 despite abnormally warm winter weather that depressed gas demand. Results are on track to meet our full-year expectations. We are reaffirming our narrow moat and stable moat trend ratings.

NiSource is one of our top utilities picks, trading at a 13% discount to our fair value estimate. 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 offer investors what we consider an attractive total return during the next five years.

Management reaffirmed its 6%-8% annual earnings growth rate target through 2027 and $1.54-$1.60 EPS guidance for 2023, both in line with our outlook.

As expected, rate increases were the biggest growth driver in the quarter following several regulatory proceedings last year. A gas rate increase in Ohio and a settlement that will raise electric rates in Indiana later this year will support earnings growth into 2024. We expect Indiana regulators to approve the settlement.

These regulatory developments along with smaller rate increases at its other utilities support our view that NiSource enjoys highly constructive regulation. This gives us confidence that NiSource will receive regulatory support for as much as $15 billion of capital investment during the next five years, driving earnings growth.

NiSource’s usage-decoupled rates in four of its six states were a huge benefit for investors during the quarter, offsetting what otherwise would have been a $0.06 EPS drag from the unusually warm weather.

We think the electric rate case settlement will expedite NiSource’s plan to sell 19.9% of its Indiana utility, NIPSCO, this year.