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NiSource Stays Neutral

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We retain our neutral recommendation on Indiana-based, NiSource Inc. (NI - Free Report) . The company posted mixed results in the second quarter 2012 with earnings beating and revenues missing the Zacks Consensus Estimates. We believe the company’s recent infrastructure modernization drive will ensure favorable performance in the following quarters.

The company’s proposed upgrading of its Columbia gas pipeline infrastructure will provide reliable and uninterrupted service to its customers. NiSource’s long-term infrastructure enhancement plan for its Gas distribution business is also expected to boost its profitability in the near term.

NiSource’s total capital investment goal of $1.4 billion for 2012 will enable the company to diversify its operations and make high-quality asset acquisitions. The company’s notable investments during the second quarter included two expansion ventures with Hilcorp Energy in the resource-rich Utica play. One of the ventures is related to the development of midstream infrastructure while the other is focused on hydrocarbon prospects. We believe these projects will enable the company to stimulate its future growth opportunities.

However, the company’s distribution and transmission activities are highly exposed to threats associated with leaks and accidents which could lead to extensive financial losses. In addition, uncertainty in the Columbia Massachusetts and Columbia Gas Pennsylvania rate case outcomes could take a toll on the company’s margins.

NiSource’s disciplined financial strategy is expected to provide sufficient flexibility for its various growth-related projects in 2012. Moreover, a solid 4% plus annualized dividend rate will undoubtedly retain investor confidence in the company’s stock.

Nonetheless, we anticipate generic risks like varied weather conditions and cost of compliance with environmental regulations could significantly impact NiSource’s margins.

NiSource reaffirmed its full year 2012 earnings guidance in the range of $1.40-$1.50 per share. The Zacks Consensus Estimates for the third quarter and full year 2012 currently stand at 17 cents per share and $1.45 per share, respectively.

The company’s closest peer is Ohio-based, FirstEnergy Corporation (FE - Free Report) . NiSource presently has a short-term Zacks #3 Rank (Hold rating).

NiSource Inc. 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 within the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England.

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