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Morningstar | NiSource’s FVE Unchanged as Estimated Claims From Boston Gas Explosion Continue to Rise

We are reaffirming our $27 per share fair value estimate after narrow-moat NiSource reported 2019 first-quarter operating EPS of $0.82 versus $0.77 in the same period last year.

However, operating earnings exclude roughly $0.30 per share of estimated costs related to the tragic natural gas explosion north of Boston in September 2018. We suspect some of these expenses may be recovered by insurance claims or regulatory relief and reversed later.

Third-party claims and other expenses have climbed to about $1.35 billion net of insurance recoveries from about $1.1 billion at 2018 year-end. We had thought most of the claims had been identified, but it appears more difficult to quantify some of the third-party claims for personal injury and property damage than we had suspected.

NiSource’s insurance policies have a combined limit of $1.1 billion ($800 million of casualty and $300 million of property), but even if some of the $250 million of incremental claims and other expenses in the recently ended quarter are not recovered, we doubt it would have a material impact on our fair value estimate.

NiSource reaffirmed 2019 operating earnings guidance of $1.27-$1.30 per share and our estimate of $1.30 per share is unchanged. The utility also reaffirmed its 2019 capital expenditure guidance of $1.6 billion to $1.7 billion. Our estimate of $1.7 billion remains at the top end of the guidance.

We believe annual EPS growth will return to management’s 5%-7% target after 2020 and our EPS growth rate estimate from 2020-23 equals 6.1%. We also expect annual dividend increases to average 6% starting next year after shareholders received only a 2.6% increase last quarter.