Utility NiSource Added To Goldman Sachs' America's Conviction Buy List: 'One Of Our Top Ideas'

Utility company NiSource Inc. NI has found its way ionto Goldman Sachs' America's Conviction Buy list, an exclusive group of Buy-rated stocks the firm believes have the best alpha-generation opportunities. 

The Analyst

Goldman Sachs analyst Michael Lapides reiterated a Buy rating on NiSource with a $30 price target.

The Thesis

Above-average EPS and dividend growth at NiSource and valuation are likely to be key drivers for the stock's relative outperformance, Lapides said in a Sunday note. (See the analyst's track record here.) 

The $600-million block stock issuance the company announced alongside first-quarter earnings removes the equity issuance overhang from the stock, Lapides said.

Goldman Sachs forecast upward EPS revisions for 2019 and beyond in light of O&M and interest savings, along with revenue increases in several states.

It's the "next leg of the NI story" that could send shares higher, Lapides said. 

"Based on company commentary, we expect NI to resolve its remaining regulatory dockets in the coming three-to-six months and view this defensive, small-cap utility as one of our top ideas into [the second half of 2018]," the analyst said.

The stock warrants a premium valuation, as NiSource's gas utility accounted for about 60-65 percent of its total profit and pure-play utilities historically trade at higher multiples relative to electric peers, Lapides said.

Goldman Sachs said a M&A premium is not included in its NiSource price target.

The Price Action

NiSource shares have been flat year-to-date.

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