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NiSource Inc. (NI - Analyst Report), an energy holding company providing natural gas, electricity and other products and services, is slated to release its second-quarter 2012 earnings result before the market opens on July 31, 2012.

Recap, First Quarter-2012

NiSource reported a mixed overall performance in the first quarter of 2012, posting a net adjusted income of 76 cents per share, beating the Zacks Consensus Estimate of 72 cents per share and year-ago earnings by 12 cents. Steady expansion in the customer base resulted in the positive earnings outcome.

Although the company accrued benefits from its modernization and expansion initiatives, revenue suffered a setback as the gas distribution business plummeted by 33.6%. Total revenue took a hit and fell substantially by 20.5% to $1.7 billion from $2.14 billion in the year-ago quarter. Moreover, revenue fell short of the Zacks Consensus Estimate of $2.2 billion.

Guidance 2012

NiSource remained firm to its original earnings guidance range of $1.40 to $1.50 per share for 2012, backed by its constructive regulatory and commercial solutions as well as profitable investments, which will lead to sustainable growth.

Zacks Consensus

The Zacks Consensus Estimate for the second quarter 2012 is 20 cents per share, up 17.6% from 17 cents reported in the comparable quarter last year. At present, the Zacks Consensus Estimate for earnings ranges from 17 cents to 22 cents per share.

For full-year 2012, the Zacks Consensus Estimate is $1.45 per share, higher than its previous year-end earnings of $1.31 per share. The current Zacks Consensus Estimate ranges between $1.42 and $1.48 per share.

Estimate Revisions Trend

Agreement

We do not see any major estimate revisions at this point. Among the 4 estimates, 1 estimate moved in the upward direction while 1 estimate was revised downwards in the past 30 days for the second quarter. For the said quarter, none of the estimates moved in the last 7 days.

A similar trend could be seen for 2012 number over the last month, with 1 out of the 5 estimates going up and 1 moving down. The last 7 days saw no revisions to the estimates.

Magnitude

The Zacks Consensus Estimate for the second quarter remained unchanged in the last 30 days. For full-year 2012, the consensus estimate has also remained relatively static in the past month with one movement in either direction canceling each other out.

Surprise History

With respect to earnings surprises, NiSource Inc. has reported favorable earnings performance in the previous quarter as well as in the second and third quarters of 2011, surpassing the corresponding Zacks Consensus Estimates.

The fourth quarter 2011 earnings miss was, however, an exception. The earnings surprise in the last four quarters ranges from (13.9%) to 21.4%. The average surprise over the last four quarters remained a positive 4.7%.

Our Recommendation

NiSource has been a prominent player in the US energy market, with diversified natural and electric operations and a substantial customer base of 3.8 million. We believe the company’s regulated operations should see significant growth, as they operate in an area that accounts for nearly 50% of the nation’s natural gas consumption and where over 40% of its population is based.

The company’s ambitious capital investment plan of $4 billion over a 10- to 15-year period will aid in the company’s goal of modernizing its infrastructure in the long term to enhance the reliability and flexibility of its pipeline business. Nevertheless, certain generic risks including multiple regulatory obstacles, inconsistent weather patterns and commodity price risks remain causes for concern.  

NiSource operates in a highly competitive energy market and faces stiff cition from companies like Duke Energy Corporation (DUK - Analyst Report) and FirstEnergy Corporation (FE - Analyst Report).

Currently, we are maintaining a long-term Neutral recommendation on NiSource Inc. The company has a Zacks #3 Rank implying a short-term Hold rating on the stock.

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