NiSource At Range Top, Still A Hold

Core Viewpoint - NiSource Inc. has experienced significant growth in market capitalization and stock price, driven by anticipated interest rate cuts and increased demand for electricity from AI data centers, despite challenges related to transitioning from coal to renewable energy sources [1][2]. Financial Performance - In Q2 2024, NiSource reported a net income of $85.8 million or $0.19 per share, an increase from $39.9 million or $0.09 per share in Q2 2023 [2] - For the first half of 2024, GAAP net income was $430.1 million, up from $359.1 million in the same period of 2023 [2] - The company expects full-year 2024 adjusted EPS of $1.70-$1.74, with annual adjusted EPS growth projected at 6-8% [2] Market Position and Growth Drivers - NiSource's equity market capitalization rose from $10.8 billion to $15.0 billion, a 39% increase, with stock price climbing 28% [1] - The company benefits from proximity to the Marcellus and Utica natural gas reserves, which supports its gas distribution and electricity generation [1][9] - Demand for electricity is increasing, particularly in northwest Indiana, with normalized electric load growing 5% in Q2 2024 and data center customers increasing usage fivefold year-to-date [1] Operational Changes and Challenges - NiSource plans to retire its baseload coal plants by 2025 and 2028, replacing them with renewable sources and flexible gas, but faces challenges in meeting the demand for reliable power supply [2][7] - The company has not provided detailed plans for replacing coal capacity with another baseload generating fuel, raising concerns about future reliability [2][7] Capital Expenditures and Financial Health - Base capital expenditures for 2024-2028 are projected at $16.4 billion [3] - As of June 30, 2024, NiSource had liabilities of $20.1 billion against assets of $29.9 billion, resulting in a liability-to-asset ratio of 67% [14] Governance and Market Sentiment - NiSource received a governance score of 2 from Institutional Shareholder Services, indicating low governance risk [11] - The company's stock price is currently at the top of its 52-week range, with a price/earnings ratio of 20.6, suggesting it is not bargain-priced [12][15]