Valuation Scorecard: Stock Rating C-Neutral (2/27/24)-NiSource Inc (NI).

At the current price of $26, what is the market’s view of NiSource’s future operating performance? NiSource’s common shares will need to reach $44 to achieve average annual stock market performance of 9.0% over the next 6 years. Upper quartile performance will require a $52 NiSource stock price by 2028.

Executive Summary

• Key NiSource characteristics: very high profitability, instability, very low expected growth, and low financial strength.
• Very high valuation, leading shareholder returns. Current valuation levels are very high relative to the NiSource Peer Group. Recent market returns have significantly outperformed the NiSource Peer Group. Total shareholder returns expected to seriously beat the overall equity market. Based on current investor expectations, NiSource shares should reach a level of $43 by 2028 — an 12.0% per year total shareholder return. A 2028 stock price of $44 would reflect median performance and a price of $52 would be required to reach upper quartile performance.
• NiSource’s historical growth is slightly below average. Historical growth has been below average relative to the NiSource Peer Group and forecasted growth is relatively very low. EPS Growth has been superior. Equity Growth, and Revenue Growth have lagged. NiSource’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. NiSource’s consensus growth expectations are in line with past growth.
• Return on Equity, Pretax Margin, and Pretax ROA are group leading. Asset Turnover is group lagging. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• NiSource’s risk profile is neutral. Overall variability has been only average with only average revenue variability, above average E.P.S. variability, and relatively low stock price volatility. Financial Strength is very low and earnings’ expectations are relatively high. The debt/capital ratio has been relatively steady.

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