NiSource Poised Evenly - Analyst Blog

On May 30, we have issued an updated research report on diversified utility operator NiSource Inc. NI. The company's infrastructure modernization drive will offer sustainable long-term growth opportunities. The U.S. shale explosion has led NiSource to gear up its midstream initiatives as is evident from the critical Columbia Pipeline program slated for a service start-up in 2014.

With the rally in upstream activity in the U.S., NiSource is focusing diligently on expanding its pipeline networks. Infact, a study by the ICF International revealed that the estimated need for natural gas pipeline will be roughly 303,000 lines through 2035. This explains the company's projected $4 billion capital investments for midstream upgrade in the next five years which would help maintain the positive momentum.

On the flip side, volatility in commodity prices might continue to act as a deterrent. In addition, climate-induced sales variation could undermine the company's performance.

NiSource, a Zacks Rank #2 (Buy) stock, kept its positive earnings streak alive by posting healthy earnings beat in first-quarter 2014. On a year-over-year basis, top and bottom line witnessed impressive growth backed by higher contributions across the company's segments.

The signs of economic improvement in NiSource's Indiana electric service zones will also support its large utility-scale upgrade projects. We believe these infrastructure-investment driven strategies will likely catapult the company's future prospects.

On a positive note, NiSource's strong cash balance position, which moved up 42% to $35 million as Mar 31, 2014, will provide financial flexibility to efficiently carry out its growth-centric projects.

However, accidents related to distribution, transmission and storage activities could disrupt NiSource's operations. Moreover, strict federal regulations could increase compliance cost pressure.

Key Picks from the Sector

Other better-ranked utility players include NRG Energy Inc. NRG, Korea Electric Power Corp. KEP and CPFL Energia S.A. CPL. All the above stocks currently carry a Zacks Rank #1 (Strong Buy).