NiSource

Indiana Gov. Mike Braun called for state regulators to review NiSource's preparation and response to an Aug. 11 storm that led to widespread and lengthy electric outages in northern Indiana.

Why it matters: NiSource could face fines or penalties as other utilities have, if regulators determine that its storm preparation and response were inadequate. NiSource reported 350,000 customer outages following the storm, or about 70% of its Indiana electric customers. NiSource has denied allegations in a class-action lawsuit that it failed to manage vegetation around its equipment. The lawsuit is unlikely to have a material impact on NiSource's financial health, given the challenging legal hurdles the plaintiffs face and the relatively small damages. Storm costs during the first half of the year were already a drag on earnings. Third-quarter storm costs could push this year's earnings per share to the lower half of management's $2.02-$2.07 guidance range.

The bottom line: We are reaffirming our $43 fair value estimate and Narrow Morningstar Economic Moat Rating for NiSource. The stock trades at a 5% discount to our fair value estimate as of Aug. 28. Even if storm costs slow earnings growth in 2026, we still expect annual earnings growth in 2027 and beyond to reach at least 7% and trend toward the high end of management's 6%-8% target as data centers ramp up.

Big picture: Regulation could become less constructive in Indiana, which represents half of NiSource's earnings. The storm comes less than a month after state regulators pushed back against NiSource's five-year, $741 million gas utility investment plan. Regulators also are exploring ways to address customer bill affordability concerns. We still expect NiSource's companywide investment to top management's $29 billion plan for 2026-30, supporting our long-term earnings growth outlook. About 25% of this investment is to support approved data center projects in Indiana.

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Our fair value estimate is $43 per share after incorporating year-to-date financial results and updated capital investment assumptions, including data center deals announced through mid-April.

We assume NiSource invests $31 billion in 2026-30. This includes management's base investment plan, $7 billion of initial investment at Genco, and $2 billion of additional growth investment we think NiSource will realize. This additional growth could come from investments in clean energy, transmission, or power generation to serve new data center demand.

We expect NiSource's safety-related gas distribution investments to remain well above maintenance-level spending for several more years, driving earnings growth across all of its gas utilities. We expect growth investment at the gas utilities to level off beyond 2028, while growth investment at the Indiana electric utility accelerates.

In total, we expect a 10% average annual rate base growth and 8% average annual earnings growth in 2025-29 on a consolidated basis. Ongoing regulatory activity at all of its subsidiaries supports our earnings growth outlook in 2026 and beyond. We expect Blackstone to maintain its 19.9% minority interest in Nipsco and Genco.

We assign NiSource a Narrow Morningstar Economic Moat Rating. Service territory monopolies and efficient scale advantages are the primary moat sources for NiSource's regulated gas and electric utilities.

State and federal regulators grant regulated utilities like NiSource exclusive rights to charge customers rates that allow the utilities to earn a return on and a return of the capital they invest in building, operating, and maintaining their networks. Regulators aim to set rates that minimize customer costs while offering fair returns for capital providers.

This implicit contract between regulators and capital providers should, on balance, allow NiSource's regulated utilities to achieve at least their costs of capital, though realized returns might vary in the short run based on demand trends, investment cycles, operating costs, and access to financing.

NiSource has a history of constructive regulatory outcomes throughout its service territories. This maximizes cash flow and supports stable returns on capital.

NiSource derives roughly half of its operating earnings from its natural gas distribution utilities and half from its integrated electric business in Indiana, excluding its minority ownership interest in its Indiana utility, Nipsco. In all cases, state and federal regulators set customer rates that allow NiSource to recover its operating and capital costs.

NiSource's stand-alone generation business, established in late 2025, supports its narrow moat through long-term fixed-price contracts with large customers, such as data centers.

NiSource exited the no-moat retail energy supply business in 2010 and has no direct commodity price exposure.

We expect the dividend to grow near 6% annually during the next few years even as NiSource executes its large capital investment plan.

NiSource's plan to replace coal generation with renewable energy in Indiana supports state policymakers' desire to cut the state's carbon emissions.

NiSource has constructive regulatory frameworks in all of the states it serves, helping smooth cash flows and improve returns for shareholders.

Industrial customers account for half of NiSource's electric sales, higher than most utilities. Industrial sales are more sensitive to the economy than residential and commercial sales.

Policies to reduce carbon emissions could be a long-term threat for NiSource's natural gas distribution business if policymakers aim to reduce retail gas use.

NiSource's large capital investment plan raises execution risk and the possibility of project delays.