NiSource Inc Valuation – March 2019 #NI

Company Profile (excerpt from Reuters): NiSource Inc., incorporated on March 29, 2000, 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. As of December 31, 2016, the Electric Operations segment provided electric services in 20 counties in the northern part of Indiana. The Company’s principal subsidiaries include NiSource Gas Distribution Group, Inc., which is a natural gas distribution holding company, and NIPSCO, which is a gas and electric company. NiSource Finance Corporation (NiSource Finance) is a consolidated finance subsidiary of the Company. NiSource Finance is engaged in financing activities to raise funds for the business operations of the Company and its subsidiaries.


Downloadable PDF version of this valuation:

ModernGraham Valuation of NI – March 2019

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 $10,657,053,567 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.51 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
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 -56.27% Fail
6. Moderate PEmg Ratio PEmg < 20 43.61 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.84 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 0.51 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.59 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg $0.66
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $9.51
MG Value based on 0% Growth $5.58
Market Implied Growth Rate 17.56%
Current Price $28.61
% of Intrinsic Value N/A

NiSource Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.34 in 2015 to an estimated $0.66 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 17.56% 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 $19.48. The company pays a dividend of $0.78 per share, for a yield of 2.7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 43.61, which was above the industry average of 23.71. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-37.86.

NiSource Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$37.86
Graham Number $19.48
PEmg 43.61
Current Ratio 0.51
PB Ratio 1.84
Current Dividend $0.78
Dividend Yield 2.73%
Number of Consecutive Years of Dividend Growth 2

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $2,055,400,000
Total Current Liabilities $4,036,800,000
Long-Term Debt $7,105,400,000
Total Assets $21,804,000,000
Intangible Assets $1,911,400,000
Total Liabilities $16,053,100,000
Shares Outstanding (Diluted Average) 369,700,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.29
Dec2018 -$0.18
Dec2017 $0.39
Dec2016 $1.02
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.66
Dec2018 $0.48
Dec2017 $0.92
Dec2016 $1.23
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

Recommended Reading:

Other ModernGraham posts about the company

NiSource Inc Valuation – June 2018 $NI
NiSource Inc Valuation – March 2017 $NI
NiSource Inc Valuation – August 2016 $NI
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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