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Still Neutral on NiSource


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We have retained our Neutral recommendation on the diversified utility NiSource Inc. (NI - Analyst Report).

NiSource is exposed to volatile commodity prices as its main source of power generation is coal and natural gas. The company mainly combats this volatile price environment through hedging and relies on regulatory recovery mechanisms to recover the costs incurred in operations. Dependence on regulatory mechanisms for cost recovery has its risks and uncertainties that can jeopardize the top line.

NiSource is also subject to strict state, local and federal government regulations. We believe the company may need to incur significant costs to comply with stringent environmental regulations, the recovery of which will depend upon favorable though unreliable rate proceedings.

The positive catalysts for NiSource include its transformation into a pure play regulated company, post divestiture of non-core assets, a strong balance sheet, investment-grade credit ratings from the rating agencies and growth in shareholder value through dividend payment.

On the flip side, customer attrition in the first half of the year remains a cause of concern. Despite the positive triggers, we maintain our Neutral recommendation on the stock as the risks and rewards stay evenly poised at present.

NiSource Inc. currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. The company competes with Dominion Resources Inc. (D - Snapshot Report) and Duke Energy Corporation (DUK - Analyst Report).

Merrillville, Indiana based NiSource is an energy holding company whose subsidiaries provide natural gas, electricity and other products and services in the U.S. Its operating subsidiaries deliver energy to customers within the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England.

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