NiSource’s mixed earnings performance in the first quarter of 2012 can be attributed to improvement in key business areas tempered by a mild winter. Earnings per share increased by 2 cents to 76 cents per share while revenue slipped to $1.7 billion from $2.14 billion in the year-ago quarter.
Considering its wide operational area, which comprises 50% of the nation’s natural gas consumption, we believe extreme weather conditions might negatively affect the company’s earnings outcome. Keeping this in view, we reiterate our Neutral recommendation on NiSource Inc. (NI).
We expect the company’s proposed capital investment of $1.4 billion will add an impetus to its investment driven growth strategy. Besides, its electric segment is involved in pro-environment investments, which will further ensure efficient energy services as well as drive growth in its service territories. The company has also undertaken a $4 billion program over a 10- to 15-year period which will aid in the company’s goal of modernizing its infrastructure in the long term to enhance the reliability and flexibility of its pipeline business.
However, volatile commodity prices as well as fluctuations in associated transportation costs are significant overhangs. Furthermore, we expect NiSource’s cost of compliance with environmental regulations to be substantial while exposure of the company’s distribution and transmission businesses to natural disaster and accidents could lead to extensive financial losses.
On a positive note, the company tasted success in rate cases with each of its three business segments experiencing earnings growth. Also, NiSource is expected to continue its marked progress in its liquidity and financing needs, providing sufficient financial flexibility for the smooth functioning of its overseas projects.
NiSource reaffirmed its earnings guidance for 2012 in the range of $1.40 to $1.50 per share. The Zacks Consensus Estimates for the second quarter and 2012 are currently pegged at 20 cents per share and negative $1.45 per share, respectively.
The company presently retains a Zacks #3 Rank which translates into a short-term Hold rating. The company’s peers include Consol Energy Inc. (CNX) and Peabody Energy Corporation (BTU).
Based in Merrillville Indiana, NiSource, an energy holding company, through its subsidiaries, provides natural gas, electricity, and other products and services. It operates in three segments: Gas Distribution Operations, Gas Transmission and Storage Operations, and Electric Operations.
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