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On Sep 30, we reiterated our Neutral recommendation on NiSource Inc. (NI - Analyst Report), the provider of natural gas, electricity and other products and services in the U.S. NiSource currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

NiSource’s second-quarter 2013 top-line surpassed our expectation mainly due to positive contribution from Gas Storage, Transportation and Distribution as well as from Electric segments. NiSource continues with its strategy of infrastructure development which will prove beneficial for long-term earnings growth.

To effectively carry out these endeavors, the company enhanced its capital expenditure guidance for 2013 by $200 million to $2 billion. The upgrade plans are aimed at increasing service reliability.

NiSource’s electricity-generating fleet is primarily fueled by coal and natural gas. The company’s gas distribution operation comprises purchasing and reselling natural gas. As a result, the company faces the risk of volatile commodity prices as well as fluctuations in associated transportation costs.

Like other regulated utilities NiSource is also subject to significant state, local and federal government regulations. NiSource’s financial health depends on frequent regulatory proceedings for the timely recovery of incurred costs. Going forward, we expect the cost of compliance with environmental regulations to significantly impact NiSource’s revenue base.

NiSource’s distribution and transmission activities are exposed to threats from leaks, accidents and natural disasters, which could lead to extensive financial losses. NiSource suffered a pipeline explosion accident in late 2012 and is presently facing several lawsuits which might dent its pocket.

Other Stocks to Consider

Other well-placed energy companies at the moment are Alliant Energy Corp. (LNT - Snapshot Report), Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report) and CEMIG (CIG - Analyst Report). All these stocks carry a Zacks Rank #2 (Buy).

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