NiSource Inc. (NI)

Total return at 5 years: 5.1%/year = 1.8% appreciation + 3.3% dividend. The target price ($45) is ex-dividend; the $7 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $57 · Multiples $42) exceeds the market price ($41).

Today — fairly valued: at $41 trades ~2.7% below its value discounted to today (~$42); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($45) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$27.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($41) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (1.5%/year) than we project (8.8%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.9 bn of owner earnings in year 5 (vs ~$1.3 bn of our base case). It recalculates if the DCF assumptions are edited.

A regulated utility is valued on P/E over adjusted earnings (equity-level): the value sits in the regulated base (rate base), which grows with capex at an allowed ROE. GAAP can be depressed by the mark-to-market of hedges → the adjusted figure is used. It returns capital via dividend (a dividend aristocrat); it may issue some equity to fund capex. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 is the TTM to Jun-2026 (GAAP, attributable to NiSource: total earnings less the non-controlling interest portion, which has run around 8% since NiSource sold a minority stake in GenCo). The base case path starts from the company's current guidance (2026 consolidated adjusted EPS: US$2.02-US$2.07; 2026-2033 CAGR: 9%-10%) rather than extrapolating the raw TTM, because the TTM is depressed by non-recurring costs from the NIPSCO lockout (US$21.4M) and the Value Captured initiative (US$5.4M) in the second quarter of 2026, plus weather noise. Diluted shares grow on the continuous equity issuance that funds the 2026-2030 capital plan of US$28,600 million (US$21,000M of base business + US$7,600M of data-center infrastructure for Amazon and Alphabet), consistent with the observed dilution (FY25 +4.1%). The bear case stresses execution of the plan (a more compressed earned ROE, more expensive financing) and the bull case accelerates the contribution of the data-center contracts.

Today's multiple compresses on its own going forward as the metric per share grows. The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $45 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $41, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $45 in 5 years plus $7 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $42. Against the current market price ($41), the margin of safety is 2.7% (trades below the maximum → there is margin) and the total return at that price would be 5.1% annually.

• Entry multiple. 24× against today's earnings.
• Terminal multiple. 17× P/E in year 5, within the 15-18× utility band.
• Margin of safety. It trades close to intrinsic value, far from the required margin of safety.
• Dividend yield. Current yield of ~2.8% with ~6.5% annual projected dividend growth.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash flow predictability. High within the traditional regulated business, via the tariff-based cost-recovery mechanism.
• ROIC vs. the 10% bar. 6.07%, below the bar — structural in a capital-intensive utility with construction in progress.
• Cash conversion. Reported FCF negative (-US$1,086M TTM) due to voluntary growth capex for the data center plan.
• Operating leverage of growth. Revenue grows faster than the operating cost base thanks to newly approved rates.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The drivers show organic growth in the customer base and volumes of the two regulated operations before the contribution of the data center contracts, which do not yet generate material revenue (starting in 2027) and therefore do not appear as their own KPI in the historical record. Gas customer growth (~0.5%-0.6% annually) is the slowest and most stable driver; segment revenue growth is dominated by new regulatory-case rates, not by volume.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Guided rate base. 9%-11% annual growth 2026-2033, well above the sector average.
• Customer concentration. Incremental growth depends on two customers (Amazon and Alphabet).
• Share dilution. Aggregate earnings growth is partly financed by continued equity issuance.
• Capex visibility. US$28,600 million capital plan already committed and broken out through 2030.

• Exclusive regulated franchise. No direct competition within the service territory across six states.
• Demand recurrence. Gas and electricity are essential services with very stable demand cycle to cycle.
• New data center line. Incremental growth source with a return structure not yet proven at scale.
• Aging infrastructure. Operational and growing capex risk in older gas and electric assets.
• Geographic diversification. Six states reduce regulatory risk concentrated in a single jurisdiction.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✕Value creation (earned ROE − 10% bar)-1.3pp
• ✓Leverage (net debt / EBITDA)5.2x · BBB+ (S&P) / Baa2 (Moody's) / BBB (Fitch)
• ✓Predictability (% regulated + rate-base growth)97% regulated · rate base +$28.6 bn/year

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Debt-to-capitalization 51.0% against a 70% debt covenant; reasonable headroom.
• Credit rating. Investment grade across all three agencies (BBB+/Baa2/BBB), with a stable outlook.
• Net debt / EBITDA. ~5.2×, elevated by the deployment phase of the US$28,600 million capital plan.
• Liquidity. Limited cash (US$70M) but proven access to investment-grade debt and equity markets.
• Authorized vs. earned ROE. The jurisdiction-level detail was not found in the extracted sections; the derived earned ROE (~8.7%) is used as the disclosed reference.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Alignment. No controlling shareholder; insiders with ~5% joint ownership, moderate alignment.
• Regulatory execution. Four rate cases resolved favorably in 2025.
• Capital allocation. Almost all cash and external capital go to the regulated plan; no buybacks or distracting M&A.
• Guidance transparency. Guidance reaffirmed with no cuts in the second-quarter 2026 earnings release.

• The reported TTM (GAAP) is depressed by nonrecurring costs from the NIPSCO labor lockout (US$21.4M) and the Value Captured initiative (US$5.4M) in the second quarter of 2026, which do not reflect normalized earning capacity.
• The market has not yet fully validated the guided rate base growth (9%-11% annually through 2033) that the Amazon and Alphabet contract enables, since it is a new growth source still without an execution track record.
• The price reflects regulatory uncertainty over how the return on the data center business will be treated relative to the traditional business.

There is no evidence of a forced seller or an extreme missing-buyers story: NiSource has broad analyst coverage and normal liquidity for a utility of this size. The observed discount looks more like reasonable market caution about the still-pending execution of the data center contract than a large gap between perception and reality.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at ~0%/year (+2% total): the margin of safety protects the downside. The bull (+7%/year, +38% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Customer concentration. The ADS contract and the Alphabet contract concentrate incremental growth in two customers with reduction or termination options.
• Regulatory risk. The data center business's return depends on a commercial mechanism not yet proven at scale relative to the classic tariff process.
• Financial leverage. Elevated debt during the phase of the company's largest capital expansion in recent history.
• Aging infrastructure. Risk of safety incidents and maintenance costs not always recoverable.
• GenCo execution. Construction of large-scale dedicated generation (2,600 MW in turbines plus 400 MW of batteries) on budget and on the 2028-2032 schedule.
• Energy transition. The retirement of coal units depends on policies and technologies that are not guaranteed.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROE 9% does not clear the 10% bar (regulated return by design).

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 9% at a PEG of 2.7 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts 2% vs our 9%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -3%/yr, bull-scenario ceiling +3%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 2%, within what we project (9%) — the story squares with the numbers.