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MDU Resources' Acquisitions & Liquidity Position Augur Well

·3 min read

MDU Resources Group, Inc.’s MDU two-platform business model, acquisitions, planned investments in the electric and natural gas utility, rising backlog as well as ongoing projects are tailwinds.

We recently issued an updated research report on this currently Zacks Rank #3 (Hold) company.

The company’s long-term (three to five years) earnings growth rate is pegged at 5%.

What’s Boosting the Stock?

MDU Resources’ two-platform business model, namely the regulated energy delivery platform and the construction materials and services platform include different operating segments. Some of its segments are exposed to seasonality related to the industries they operate in. This strategic two-platform set-up helps mitigate seasonality-related risks that affect demand.

The company spent $310.6 million in the first half of 2020 and expects to invest $609 million in 2020 and $1,942 million through the 2020-2022 time period. These investments will increase its reliability of services and enable it to serve the growing customer base more efficiently.

At the end of first-half 2020, the construction materials had a backlog of $875 million. The construction services business had a backlog of $1.3 billion at the end of second-quarter, up 18.2% from the year-ago quarter’s level. Further, the construction material business continues to successfully acquire businesses for expanding the company’s aggregate reserves and market coverage across the West United States.

Moreover, total liquidity of MDU Resources at the end of the first half was worth $719.5 million, which will be sufficient to meet its near-term debt obligation.

Woes

However, the company’s electric and natural gas transmission, and distribution businesses are subject to a comprehensive regulation by the federal, state and local regulatory agencies. Also, changes in regulations or the introduction of additional rules could increase its overall expenses depending on the extent of investments. Moreover, aging infrastructure and stiff competition remain concerns.

Price Performance

In the past three months, shares of the company have gained 4.9% against the industry's decline of 5.4%.

Stocks to Consider

A few better-ranked utilities are Southwest Gas Corporation SWX, MGE Energy Inc. MGEE and Otter Tail Corporation OTTR, all carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Southwest Gas has a long-term (three to five years) earnings growth rate of 5%. It delivered an earnings surprise of 6.53%, on average, in the last four quarters.

MGE Energy has a long-term earnings growth rate of 4.38%. The Zacks Consensus Estimate for 2020 earnings has moved 4.4% north in the past 60 days.

Otter Tail Corporation delivered an earnings surprise of 3.92%, on average, in the trailing four quarters. The Zacks Consensus Estimate for 2020 earnings has been revised 4.7% upward in the past 60 days.

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Southwest Gas Corporation (SWX) : Free Stock Analysis Report
 
Otter Tail Corporation (OTTR) : Free Stock Analysis Report
 
MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
 
MGE Energy Inc. (MGEE) : Free Stock Analysis Report
 
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