NiSource Inc.NINYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $115.32 per share(market-calibrated)

+146.7%

Upside to Fair Value

Current

$46.74

Pure Model

$125.41

Fair Value

$115.32

Bull Case

$158.11

Bear Case

$102.14

Market Reality Check

Model Terminal Growth

2.00%

Market-Implied Growth

0.50%

Calibrated Growth

1.48%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $125.41.

What's Driving This Ratingfor NI

↓

CapEx normalizing toward maintenance

Historical CapEx is 36.47% of revenue (heavy investment phase). Model fades this to 5.00% by Year 10, freeing up ~$3.4B in annual FCF. This is the biggest driver of long-term cash flow improvement.

✓

Premium margins already priced in

EBIT margin of 35.67% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

→

Moderate revenue growth

Analyst consensus projects -0.26% revenue growth, fading to 2.00% by Year 10. Revenue reaches $10.7B (vs $6.6B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $147.51/share (29.1x terminal FCF) while exit multiple gives $103.32/share (20.5x terminal FCF). The base case averages both methods.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 150bps below the model's 2.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 77.91% indicates efficient cash generation. FCF reaches $4.1B by Year 10 (38.79% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.65

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)7.43%

Cost of Debt

Pre-tax Cost of Debt2.89%

Tax Rate16.75%

After-tax Cost of Debt2.41%

Equity Weight (E/V)57.65%

Debt Weight (D/V)42.35%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (57.65% × 7.43%) + (42.35% × 2.41%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$6.6B	$7.5B	$8.9B	$9.8B	$10.7B
EBIT	$2.4B	$2.7B	$3.2B	$3.5B	$3.8B
Tax	$396M	$447M	$530M	$586M	$639M
NOPAT	$2.0B	$2.2B	$2.6B	$2.9B	$3.2B
+ Depreciation	$935M	$1.1B	$1.3B	$1.4B	$1.5B
- Capex	$2.4B	$2.2B	$2.0B	$1.5B	$535M
- Δ NWC	-$190,004.624	$6M	$6M	$5M	$2M
Free Cash Flow	$486M	$1.1B	$1.9B	$2.8B	$4.1B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$461M	$909M	$1.4B	$1.9B	$2.4B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$4.1B

Terminal Growth Rate2.00%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$120.9B

PV of Terminal Value$70.8B

Exit Multiple Method

Year 10 EBITDA$5.3B

Exit Multiple (EV/EBITDA)16.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$85.2B

PV of Terminal Value$49.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$15.1B

PV of Terminal Value$70.8B

Enterprise Value$85.9B

(-) Net Debt$16.1B

Equity Value$69.8B

Shares Outstanding473M

Price per Share$147.51

Exit Multiple Method

PV of Projected FCFs$15.1B

PV of Terminal Value$49.9B

Enterprise Value$65.0B

(-) Net Debt$16.1B

Equity Value$48.9B

Shares Outstanding473M

Price per Share$103.32

Pure Model Fair Value

$125.41

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.00%	1.50%	2.00%	2.50%	3.00%
3.50%	$191.76	$223.94	$213.07	$202.72	$192.86
4.50%	$139.48	$153.53	$173.21	$202.72	$192.86
5.50%	$108.21	$115.74	$125.41	$138.31	$156.37
6.50%	$86.79	$91.31	$96.84	$103.75	$112.64
7.50%	$70.86	$73.79	$77.26	$81.42	$86.50

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$102.14

118.5% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.81

Base Case

$125.41

168.3% vs current

• Analyst consensus
• Terminal growth: 2.0%
• Beta: 0.65

Bull Case

$158.11

238.3% vs current

• +25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.55

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Utilities Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth-0.26%

Year 3 Revenue Growth7.19%

Year 5 Revenue Growth6.57%

Year 7 Revenue Growth4.74%

Year 10 Revenue Growth2.00%

Terminal Growth Rate2.00%

Margin & Efficiency

Current EBIT Margin35.67%

Tax Rate16.75%

Historical Capex / Rev36.47%

Terminal Capex / Rev5.00%

NWC / Revenue1.11%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 16x EV/EBITDA (Utilities sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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