Morningstar | NI Updated Forecasts and Estimates from 02 Nov 2018
We are reaffirming our $26 fair value estimate after narrow-moat NiSource reported 2018 third-quarter operating EPS of $0.10 versus $0.07 in the same period last year. However, operating earnings exclude costs associated with the series of fires and gas explosions that occurred in Massachusetts on Sept. 13. Pretax reserves of $452 million were charged to the third quarter, roughly $1.05 per share, reducing GAAP earnings to a loss of $0.95 per share.An investigation by the U.S. National Transportation Safety Board could take over a year to complete and the U.S. Attorney’s Office for the District of Massachusetts is also conducting a criminal investigation. The outcomes of these investigations are impossible to predict, but we believe they will not have a material impact on our fair value estimate.
NiSource management indicated that it has liability insurance coverage of $800 million and it expects to recover substantially all costs associated with the accident. Based on caps on fines in Massachusetts and the amount of insurance coverage, we have reduced our assumption of fines, lawsuits, and other liabilities not recovered by insurance claims to $50 million from our previous assumption of $100 million. However, this expense is still not material to our fair value estimate, as we expect the benefit to earnings and cash flow from the acceleration of capital expenditures to replace substandard pipe to offset the amount of unrecovered expenses.
The company reaffirmed its full-year guidance range of $1.26-$1.32 per share and is treating all expenses associated with the Massachusetts incident as special items and not included in operating earnings. We have accounted for these expenses in a similar fashion to be consistent with NiSource's reporting and have increased our 2018 operating EPS estimate to $1.26 from $1.25. The change does not have an impact on our fair value estimate as we now treat the $50 million of nonrecovered cash expenses as a special item.
NiSource is an energy holding company. Through its subsidiaries, the company is a natural gas distribution company. The company's reportable segments are: Gas Distribution Operations and Electric Operations. For its gas distribution operations, through its wholly-owned subsidiary, NiSource Gas Distribution Group, Inc., the company owns distribution subsidiaries that provide natural gas to residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Massachusetts. Through its electric operations, the company generates, transmits and distributes electricity through its subsidiary, Northern Indiana Public Service Company LLC, and engages in wholesale and transmission transactions.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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