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MDU Resources (MDU) Gains on Investment & Two-Platform Business

Zacks Equity Research
·3-min read

MDU Resources Group Inc. MDU has been gaining from its two-platform business model and planned investments in capital projects to strengthen infrastructure. Efficient debt management, strategic acquisitions and a solid backlog are expected to drive its performance over the long run.

MDU Resources currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for 2022 earnings per share (EPS) of MDU Resources has moved up 9.6% year over year. MDU’s long-term (three to five years) earnings growth is currently pegged at 6.9%. Moreover, MDU Resources’ current dividend yield of 3.4% is better than the industry average of 2.7%. You can see the complete list of today’s Zacks #1Rank (Strong Buy)stocks here.

Tailwinds

MDU Resources’ two-platform business model helps balance out seasonality-related risks that can adversely impact energy demand. The planned investment helps MDU increase the reliability of services and enables it to serve an increasing customer base effectively. MDU Resources spent $936 million in 2021 and plans to spend $770 million on capital projects in 2022. The capital program is expected to be largely funded by operating cash flows in the range of $550-$600 million. Overall, MDU Resources plans to invest $3,071 million in the 2022-2026 period and continue to witness 1-2% customer growth in the electric and natural gas segments annually.

In the first quarter of 2022, MDU Resources’ total debt to total capital was 44.8%, better than the utility gas distribution industry’s 50.1%. This indicates that MDU has ample liquidity to meet its near-term obligations. Moreover, the times interest earned ratio is 5.6 at the end of the first quarter of 2022. A ratio greater than one indicates that the company has enough financial strength to meet its near-term obligations.

MDU Resources continues to work on many pipeline expansion projects across its system, including the North Bakken Expansion project, the Wahpeton Expansion project and recent long-term customer agreements for four additional projects. These projects are likely to increase the natural gas transportation capacity across the system.

The utility’s consistent and disciplined approach to acquisitions, along with a solid backlog, is expected to drive its performance. As of Mar 31, 2022, the construction services business had a backlog of $1.67 billion compared with $1.27 billion in the corresponding period of 2021. As of Mar 31, 2022, the construction materials business had a backlog of $940 million, up from $819 million as of Mar 31, 2021. MDU Resources already made a few acquisitions to strengthen Construction Materials and Services.

Headwinds

MDU Resources operates in a highly competitive electric and natural gas industry. The utility is exposed to fluctuating fuel costs and increasing interest rates on borrowings, which will adversely affect the operating and financial results. To meet the conditions of stringent rules and regulations and maintain cyber security, MDU Resources needs to bear additional costs.

Price Performance

In the past three months, shares of MDU have declined 6.7% against the industry’s 12.5% rise.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Stocks to Consider

Some similar-ranked stocks from the same industry are Atmos Energy ATO, ONE Gas OGS and Sempra Energy SRE.

The long-term (three to five years) earnings growth of Atmos Energy, ONE Gas and Sempra Energy is 7.3%, 5% and 5.6%, respectively.

The Zacks Consensus Estimate for 2022 EPS of Atmos Energy, ONE Gas and Sempra Energy has moved up 7.8%, 6% and 0.5% year over year, respectively.

ATO, OGS and SRE delivered an average earnings surprise of 1.1%, 2% and 2.8%, respectively, in the last four quarters.


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Sempra Energy (SRE) : Free Stock Analysis Report

Atmos Energy Corporation (ATO) : Free Stock Analysis Report

MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report

ONE Gas, Inc. (OGS) : Free Stock Analysis Report

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Zacks Investment Research