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MDU Resources' Acquisitions & Liquidity Position Augur Well

Zacks Equity Research

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 act as tailwinds.

We recently issued an updated research report on this currently Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company’s long-term (three to five years) earnings growth rate is pegged at 5%. Also, it has a trailing four-quarter positive earnings surprise of 28%, on average.

What’s Boosting Up the Stock?

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

The company spent $188.9 million in the first quarter of 2020and expects to invest $594 million in 2020 and $1,990 million through the 2020-2022 time period. These investments will increase reliability of services and enable MDU Resources to serve the growing customer base effectively. The company expects rate base to witness a 5-8% CAGR over the next five years.

At the end of first-quarter 2020, the construction materials business had backlog of $905 million. The construction services business had a backlog of $1.27 billion, up 24.5% from the year-ago quarter’s level. The rising backlog can be attributed to the geographic diversity of construction operations and the improving economic conditions in service territories.

Moreover, total liquidity of MDU Resources at the end of the first quarter was worth $548.3 million, which will be sufficient to meet its near-term debt obligation.

Headwinds

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. Changes in regulations or the imposition of additional rules could escalate the overall expenses pertaining to investments.

Price Performance

In the past 12 months, shares of the company have lost 21.3% compared with the industry's decline of 31.5%.


Stocks to Consider

A few better-ranked stocks from the same space are Atmos Energy Corporation ATO, Southwest Gas Corporation SWX and Sempra Energy SRE, all carrying a Zacks Rank #2 (Buy) at present.

The Zacks Consensus Estimate for Atmos Energy’s fiscal 2020 earnings has moved 0.21% north over the past 60 days. Its long-term earnings (three to five years) are expected to grow at 7.20%.

The long-term earnings growth rate for Southwest Gas is pegged at 6%. The Zacks Consensus Estimate for 2020 earnings has remained unchanged over the past 60 days.

Sempra Energy’s long-term earnings growth rate is 7.18%. It has a trailing four-quarter positive earnings surprise of 11.05%, on average.

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Sempra Energy (SRE) : Free Stock Analysis Report
 
Southwest Gas Corporation (SWX) : Free Stock Analysis Report
 
MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
 
Atmos Energy Corporation (ATO) : Free Stock Analysis Report
 
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