In the rapidly evolving artificial intelligence (AI) landscape, data centers are essential in supporting the expansion of AI-based applications, serving as the backbone of digital data processing and storage. The massive boom in data centers is fueling growth across industries, and primarily in the energy sector, as these massive AI computing hubs are a key catalyst behind forecasts for surging electricity demand.
As a result, utility companies like NiSource (NI) are among those expected to benefit significantly from data center growth. In a recent analyst note, brokerage firm Jefferies highlighted NiSource stock as a “data center darling,” and argued that the company is worthy of a premium valuation and due for a potential re-rating opportunity.
The bullish endorsement was nothing new for NI, which already boasts 100% “Strong Buy” ratings from the 14 analysts in coverage. Here's a closer look at what Wall Street loves about this data center stock.
About NiSource Stock
Based in Merrillville, Indiana, NiSource (NI) is a large-cap utility company that specializes in the distribution, storage, transmission, and generation of natural gas (NGZ24) and electricity. NiSource serves nearly 4 million natural gas and electric customers across seven states under the Columbia Gas and NIPSCO brands. The company manages approximately 55,000 miles of gas distribution networks and around 1,000 miles of transmission pipelines.
With a market cap of $16 billion, shares of NiSource have rallied nearly 30% YTD, outperforming the broader S&P 500 Index's ($SPX) 20.1% rise in the same time period. In fact, NI stock set a new all-time high of $35.48 as recently as Oct. 24.
Investing in this utility company also comes with a generous dividend opportunity. NiSource has consistently paid dividends to its shareholders for the last three decades, and has increased its quarterly payout in each of the last 13 years. The current quarterly payout stands at $0.27 per share, yielding 3.07% at current levels.
NiSource Beats Q3 Expectations
On Oct. 30, NiSource revealed its third-quarter earnings for fiscal year 2024, which exceeded estimates on both revenue and earnings. The company reported revenue of $1.08 billion, an improvement over last year's $1.02 billion. Net income for the quarter hit $85.7 million, marking a 10% increase from the same quarter a year ago. Notably, the company also saw significant reductions in energy and operating costs, which contributed to its financial performance. On an adjusted basis, NiSource earned a profit of $0.20 per share, better than the expected $0.14.
During the Q3 earnings call, the company highlighted its renewable energy portfolio, which is enhancing its operational efficiency. Additionally, investments in infrastructure and partnerships are positioning NiSource for long-term growth.
Recently, NIPSCO implemented an approved increase in natural gas rates and also applied to the Indiana Utility Regulatory Commission to raise its electric rates.
"We are making progress in our rate cases, advancing the NIPSCO Integrated Resource Plan dialogue, and have received approvals for several investments in Indiana that will improve reliability and reduce costs to customers," CEO Yates noted. "These and future partnerships form the foundation of our updated 5-year financial plan and the extension of our elevated investment opportunity."
NiSource has announced a five-year capital expenditure base plan based on $19 billion, projecting an 8% growth rate over this period. Looking ahead, company management has updated its guidance for fiscal year 2024, with EPS expected to be between $1.70 and $1.74, an increase from the previous forecast of $1.68 to $1.72.
Analysts Call NiSource a “Strong Buy”
With over a dozen analysts in coverage, the unanimous rating on Wall Street for NI stock is a “Strong Buy” - and ahead of the Q3 print, the stock scored its latest bull rating from Jefferies.
Given the “favorable regulatory environments for NI's ambitious scaling” in the company's key markets of Indiana and Pennsylvania, analyst Julien Dumoulin-Smith sees NiSource as one of the best-positioned utility stocks to leverage AI data center upside going forward.
"As NiSource (NI) continues to update its plans, we see clear potential for $10B-plus of investment above its current 10-year plan, as well as further re-rating of NI's slight premium vs. peers today," wrote the analyst, who's targeting an 8.5% compound annual growth rate for NI's earnings per share from 2024 through 2028.
Dumoulin-Smith joined the rest of his peers by rating NI a “Buy,” and set a price target of $39 - slightly higher than the average analyst price target of $37.96, and implying expected upside of about 13% over the next 12 months.
On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
