Hook / Thesis
NiSource (NI) blends the steady cash flows of a regulated gas distributor with incremental upside tied to electrification - most notably growing data-center demand - and a capital program that management has been funding with operating cash flow plus modest financing. The stock is trading around $41.88 (prev close), and using diluted shares of ~472.1 million from the latest filing, that implies an approximate market cap of $19.8 billion. That valuation begins to look reasonable if NiSource can translate incremental load from hyperscale and enterprise data centers into rate-base growth and improved regulated returns without triggering major political or regulatory pushback.
Why the market should care
NiSource is one of the nation's largest natural gas distribution companies with roughly 3.2 million customers across Indiana, Kentucky, Maryland, Ohio, Pennsylvania and Virginia, plus an electric T&D footprint that serves ~500,000 customers in northern Indiana. Management is running a large capital program: the most recent quarterly cash-flow shows sizable investing outflows and consistent operating cash generation. If a material portion of incremental electric load from data centers materializes in its territories, that drives faster utility rate-base growth - a value-creating, low-structural-risk outcome for regulated utilities compared with merchant generation or unregulated businesses.
Business snapshot and fundamentals
Core facts from the latest filings (Q2 2025, period 04/01/2025 - 06/30/2025, filed 08/06/2025):
- Revenues: $1,246.5 million for Q2 2025.
- Operating income: $262.9 million in the quarter.
- Net income: $100.5 million; diluted EPS of $0.22 on 472.1 million diluted shares.
- Assets: $34.03 billion; fixed assets of $27.45 billion - heavy capital base consistent with regulated utilities.
- Balance-sheet snapshot: liabilities ~$23.03 billion and equity ~$10.997 billion as of Q2 2025.
- Cash flow: operating cash flow of $495.4 million in Q2 2025 and negative investing cash flow of $1.2136 billion (reflecting capex).
- Dividend: quarterly payout recently increased to $0.28 (declaration 08/12/2025), annualized ~$1.12 which equates to ~2.7% yield at a ~$41.88 stock price.
Two numbers move the valuation needle: operating cash flow and capex. NiSource generated nearly half a billion in operating cash in the most recent quarter while investing over $1.2 billion - a classic regulated-utility profile of rate-base investment financed by operating cash + debt/financing. Financing activity in Q2 2025 was positive $780.1 million, indicating active balance-sheet management to fund growth.
Valuation framing
Using the latest diluted share count (472.1 million) and the prior close (~$41.88), the implied market cap is roughly $19.8 billion. If we conservatively annualize near-term earnings by summing four recent quarters with available net income (Q3 2024: $97.0M; Q4 2024: not filed in this set; Q1 2025: $526.7M; Q2 2025: $100.5M) and filling with the nearby quarters available, a reasonable TTM net income proxy is ~ $827 million. That implies a P/E in the high-teens to mid-20s (roughly ~24) on a simple look-through basis. Book value at Q2 2025 is about $10.997 billion, or ~ $23.30 per share; the stock at ~$41.88 trades around 1.8x book.
Translation: the market is pricing a utility with modest growth (not the ultra-low multiple of slower-growers) but not a growth utility multiple either. If NiSource captures tangible data-center load (and corresponding rate-base additions), the multiple could re-rate higher; conversely, regulatory setbacks or persistent higher financing costs would justify the current multiple or lower.
Why NiSource can benefit from data-center demand - the practical mechanics
- Data centers create predictable, high-load, long-duration connections. For a distribution/transmission utility that upgrades feeders and builds substations, those investments increase rate base and hence regulated earnings over time.
- NiSource already has a large fixed-asset base ($27.45B in fixed assets). Incremental substation and feeder build-outs are marginal additions to rate base with regulated returns, making the economics easier to model and finance than merchant generation.
- Recent cash-flow and financing patterns show the company is both funding and prioritizing investment: operating cash flow was $495.4M in the latest quarter while investing was -$1.2136B. That suggests the company has room - and the intent - to invest where load growth justifies it.
Crucially, compared with more visible politically fraught utilities (e.g., companies with major environmental remediation or contentious regulatory disputes), NiSource's footprint and recent press coverage suggest it faces less headline political risk, making the pathway from investment to recovery in rates less binary and potentially faster.
Catalysts (what to watch)
- Data-center announcements or long-term service agreements in NiSource territory - direct evidence that load will grow.
- Favorable rate-case decisions or regulatory orders approving incremental rate-base recovery linked to electrification projects.
- Quarterly operating cash-flow improvement and capex-to-rate-base conversion evidence in upcoming filings (watch the next two quarterly cash-flow statements after 08/06/2025).
- Continued dividend consistency and incremental hikes - management's comfort with the payout amid investment.
Trade idea (actionable)
Thesis: Long NiSource - play regulated rate-base growth tied to data-center electrification while retaining the defensive attributes of a utility.
Entry: 40.50 - 42.50 (buy the range; prefer scaling in on dips near the low end).
Stop: 36.50 (a breach would be below recent multi-week support and would protect against downside from a macro/regulatory shock).
Targets:
- Target 1: $48 - near-term technical and fundamental upside; ~15% from current price.
- Target 2: $56 - position target if catalysts (data-center wins, favorable rate decisions) materialize; ~34% from current price.
Position sizing: keep the position size consistent with a medium-risk utility allocation; this is not a high-growth idiosyncratic name.
Risk profile and counterarguments
NiSource is not without meaningful risks. Below are principal risks and the counterargument to our bullish stance.
- Regulatory risk: Rate cases can take months and outcomes can undercut expected returns. If state commissions deny full recovery or impose lower ROEs, earnings tied to capex won't materialize as forecast. This is the single largest execution risk.
- Interest-rate / financing risk: Utilities are capex-intensive. If credit markets tighten and borrowing costs rise materially above current expectations, the financing cost could compress net earnings or force higher equity issuance.
- Load timing and customer mix: Data-center projects can delay or locate elsewhere. If the promised load growth is slower or shifts to competitors' territories, the valuation premium will not be justified.
- Operational / execution risk: Large capital projects carry timing, permitting and cost-overrun risks. The company invested heavily in Q2 2025 (-$1.2136B investing cash flow); overruns would pressure free cash flow.
- Macro / commodity exposure: Natural gas markets and weather swings affect margins and distribution demand - a milder winter or weaker industrial demand could dent throughput and cash flow.
Counterargument
One could reasonably argue NiSource is already priced for the modest growth it can deliver and that the stock's ~24x P/E and ~1.8x book reflect a market that is skeptical about data-center displacement risk and the timing of rate-case wins. In addition, rising rates could compress multiples across regulated utilities; if that environment persists, NiSource may underperform defensive peers.
What would change my mind
- Negative catalysts: a regulatory rejection of a major rate-base recovery plan, a dividend cut, or a material downward revision to capex-to-rate-base conversion would push me to reduce or flip the position.
- Positive catalysts: confirmed multi-year data-center contracts and successive rate-case wins with attractive ROEs would make me more constructive and push to take profits at higher targets or add to the position.
Conclusion
NiSource sits in an appealing middle ground: a large regulated footprint, visible capital spending, improving quarterly operating cash flow and a modestly growing dividend. The data-center electrification wave is a plausible incremental demand driver that can accelerate rate-base growth without the headline political risk that clamps down other utility investment stories. The trade here is tactical - buy in the 40.50-42.50 range, protect with a stop at 36.50, and use tiered targets of 48 and 56. Keep position sizes appropriate to a medium-risk utility exposure and monitor rate-case outcomes, financing costs and any direct data-center contract disclosure.
Note: Figures cited above are drawn from NiSource quarterly filings (most recent quarter ended 06/30/2025, filed 08/06/2025) and the prior close at 41.88. Market-cap and derived multiples use diluted shares reported in filings as a proxy for outstanding shares.
Disclosure
This is not financial advice. The author has no position expressed in this write-up; readers should do their own due diligence and size positions consistent with their risk tolerance.