NiSource Inc Valuation – August 2016 $NI

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how NiSource Inc (NI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): NiSource Inc. is an energy holding company. The Company is engaged in the distribution of natural gas. The Company operates through two business segments: Gas Distribution Operations and Electric Operations. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and Massachusetts. Its natural gas distribution operations operate approximately 59,000 miles of pipeline. The Electric Operations segment provides electric service in approximately 20 counties in the northern part of Indiana. The Company’s principal subsidiaries include NiSource Gas Distribution Group, Inc., a natural gas distribution holding company, and NIPSCO, a gas and electric company. NIPSCO owns and operates approximately three coal-fired electric generating stations. NiSource Finance Corporation (NiSource Finance) is a consolidated finance subsidiary of the Company.

NI Chart

NI data by YCharts

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NI – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,938,740,415 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.47 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 60.89% Pass
6. Moderate PEmg Ratio PEmg < 20 19.91 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.10 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.47 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -4.08 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

NI value chart August 2016

EPSmg $1.24
MG Growth Estimate 2.52%
MG Value $16.83
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $18.03
MG Value based on 0% Growth $10.57
Market Implied Growth Rate 5.71%
Current Price $24.76
% of Intrinsic Value 147.14%

NiSource Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $1.06 in 2012 to an estimated $1.24 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.71% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into NiSource Inc. revealed the company was trading above its Graham Number of $16.72. The company pays a dividend of $0.62 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.91, which was below the industry average of 24.74, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-38.86.

NiSource Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

NI charts August 2016

Net Current Asset Value (NCAV) -$38.86
Graham Number $16.72
PEmg 19.91
Current Ratio 0.47
PB Ratio 2.10
Current Dividend $0.62
Dividend Yield 2.50%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $1,259,600,000
Total Current Liabilities $2,696,200,000
Long-Term Debt $5,857,200,000
Total Assets $17,617,200,000
Intangible Assets $1,937,100,000
Total Liabilities $13,806,600,000
Shares Outstanding (Diluted Average) 322,900,000

Earnings Per Share History

Next Fiscal Year Estimate $1.05
Dec2015 $0.90
Dec2014 $1.67
Dec2013 $1.70
Dec2012 $1.39
Dec2011 $1.03
Dec2010 $1.01
Dec2009 $0.79
Dec2008 $0.29
Dec2007 $1.17
Dec2006 $1.03
Dec2005 $1.12
Dec2004 $1.64
Dec2003 $0.33
Dec2002 $1.75
Dec2001 $1.03
Dec2000 $1.11
Dec1999 $1.27
Dec1998 $1.59
Dec1997 $1.53
Dec1996 $1.43

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.24
Dec2015 $1.34
Dec2014 $1.49
Dec2013 $1.33
Dec2012 $1.06
Dec2011 $0.89
Dec2010 $0.83
Dec2009 $0.79
Dec2008 $0.87
Dec2007 $1.13
Dec2006 $1.13
Dec2005 $1.18
Dec2004 $1.20
Dec2003 $1.02
Dec2002 $1.36
Dec2001 $1.21
Dec2000 $1.33

Recommended Reading:

Other ModernGraham posts about the company

NiSource Analysis – 2015 Update $NI
NiSource Inc. Annual Valuation – 2014 $NI

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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