MDU Resources (MDU) to Gain From Spin-off, Systematic Investments
MDU Resources’ MDU planned investments will further improve the reliability of services to better serve the company’s growing customer base. The company is set to benefit from the completed spinoff of Knife River, which will allow it to focus on regulated energy delivery.
However, this Zacks Rank #2 (Buy) company has to face risks related to aging infrastructure and seasonality of business operations.
Tailwinds
MDU has raised its 2023 guidance for earnings from regulated energy delivery businesses to the $150-$160 million range, up $10 million from the previous prediction. Capital expenditures for the first six months of 2023 totaled $232.1 million compared with $209.9 million in the comparable period of 2022. Capital expenditures allocated to the company’s business segments are estimated to be approximately $528.3 million for 2023. These investments will increase the reliability of its services and enable it to effectively serve an increasing customer base. The company’s compound annual growth rate target for the next five years is in the 6-7% range.
The separation of Knife River completed on Jun 01, 2023, bringing both the companies closer to their goal of becoming two best-in-class, pure-play companies. Post spinoff of Knife River, MDU Resources now primarily focuses on regulated energy delivery, which will allow it to serve its customers more efficiently with value-added natural resource products and related services.
MDU began construction work in the second quarter of 2023 on three natural gas pipeline expansion projects that are anticipated to be in service later this year. This will add approximately 300 million cubic feet per day of incremental capacity.
Headwinds
A significant portion of the company’s natural gas pipelines and transmission facilities is aging, which may affect operational results. Weathered natural gas pipelines and transmission facilities increase certain risks like breakdown or failure of equipment, pipeline leaks and breakout of fire from the power lines. This may result in unplanned outages, which can hamper the company’s reliability and ability to serve customers.
Some of its operations are highly seasonal, and revenues and certain expenses for such operations may fluctuate significantly from one quarter to another.
Other Stocks to Consider
Some other top-ranked stocks from the same sector are Atmos Energy Corp. ATO, FirstEnergy Corporation FE and Consolidated Water Co. Ltd. CWCO, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ATO’s long-term (three to five years) earnings growth rate is 7.25%. It delivered an average earnings surprise of 2.4% in the previous four quarters.
FE’s long-term earnings growth rate is 6.45%. The Zacks Consensus Estimate for FE’s 2023 EPS indicates an increase of 5% from the previous year’s reported number.
CWCO’s long-term earnings growth rate is 8%. It delivered an average earnings surprise of 23.8% in the previous four quarters.
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FirstEnergy Corporation (FE) : Free Stock Analysis Report
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Consolidated Water Co. Ltd. (CWCO) : Free Stock Analysis Report
