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Black Hills Touches 52-Week High

Zacks Equity Research

On Mar 4, 2014, the shares of Black Hills Corporation (BKH) climbed to its 52-week high of $57.88, primarily on the back of improvement in fourth-quarter 2013 earnings, a systematic organic and inorganic growth strategy, and payment of incremental dividend. The share price finally closed at $57.54, up 2.1% from the previous day’s closing.

In fourth-quarter 2013, Black Hills Corp.’s earnings edged up around 2.9% year over year to 70 cents per share. Quarterly result also surpassed the Zacks Consensus Estimate by 6.1%. The surge in earnings was mainly driven by colder-than-normal weather and higher revenues as a result of strong contribution from the Electric Utilities, Gas Utilities, and Oil and Gas segments. The company’s earnings surpassed the estimates in 3 out of the last 4 quarters, with average surprise of 7.4%.

We note that Black Hills Corp. continues to exhibit its efficiency in terms of improving operating cash flow. In 2013, the company’s cash flow from operating activities jumped 2.4% to $324.6 million from $317 million in the year-ago comparable period.

A strong cash generation capacity supports Black Hills Corp.’s expansion program. In 2013, the company invested $379.5 million as capital expenditures and for asset acquisition activities. A 9.1% year-over-year increase in capital expenditures was primarily due to construction of a 132-megawatt natural gas-fired electric generating facility, Cheyenne Prairie.

On the inorganic front, Black Hills Corp. inked an agreement with MGTC, a unit of Anadarko Petroleum Corporation (APC), to acquire the latter’s gas transmission and distribution utility assets for $6 million. The transaction is subject to customary closing adjustments.

These initiatives will enable the company to improve its scale of operations and add new customers to its portfolio, thereby boosting cash inflow.

In addition to expansion of utility portfolio, Black Hills Corp. is also expanding its operations under the oil and gas segment. The company completed two horizontal wells in the Mancos Shale formation in the southern Piceance Basin.

Apart from investing substantially in growth projects, Black Hills Corp. is also taking initiatives to improve shareholders’ wealth. The company recently raised its quarterly dividend rate by a penny to 39 cents from the earlier payout. On an annualized basis, the new dividend rate will be $1.56 per share.

Black Hills Corp. currently has a Zacks Rank #2 (Buy). Some other stocks worth considering in the utilities industry include Public Service Enterprise Group Inc. (PEG) and Avista Corporation (AVA). While Public Service Enterprise holds a Zacks Rank #1 (Strong Buy), Avista Corporation carries a Zacks Rank #2 (Buy).

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