MDU Resources (MDU) to Gain From Spin-off & Planned Investments
MDU Resources’ MDU planned investments in the electric and natural gas utility, two-platform business model, and rising backlog will benefit its earnings. Strategic investments will strengthen its infrastructure and improve the reliability of services to better serve its growing customer base.
However, this Zacks Rank #2 (Buy) stock’s construction material products are subject to strong competition in terms of price, delivery time and proximity to customers.
Tailwinds
MDU Resources’ two-platform business model, regulated energy delivery platform, and construction materials and services platform include different operating segments. This spin-off of two-platform will unlock value for the existing shareholders of the company. The capital program is expected to be largely funded by operating cash flows of $550-$600 million. Overall, the company plans to invest $2.15 billion in 2023-2025.
The utility’s consistent and disciplined approach to acquisitions, along with a solid backlog, is expected to drive its performance. Recently, MDU executed the plan to separate Knife River Corporation, a fully owned construction materials business, from its business. The spinoff of Knife River into an independent, publicly traded business is projected to be completed in the second quarter of 2023. This separation will unlock value for the existing shareholders of MDU.
Steady earnings generation enables the company to distribute regular dividends to its shareholders. It has been paying out dividends for the past 85 consecutive years. MDU raised its annual dividend in November 2022, marking the 32nd consecutive year of an increase. Its new annualized dividend is 89 cents per share.
The company continues to work on a number of other pipeline expansion projects across its system, including the previously announced Wahpeton Expansion project, which is expected to be in service in late 2024, subject to regulatory approvals.
Headwinds
MDU Resources’ financial conditions may be adversely impacted due to strict government regulations, higher interest rates, aging infrastructure, seasonality of business operations and stiff competition. In a rising interest rate environment, it might not be possible for the company to access capital at competitive rates. Higher interest rates on borrowings can also have an adverse impact on the company's operating and financial results.
The electric utility and natural gas industries face competitions related to consumer demand, technological advances and other factors. If MDU is unable to attract customers and expand subscriptions of the existing ones, its revenue growth and profitability will be adversely impacted.
Other Stocks to Consider
Some other top-ranked stocks from the same sector are New Jersey Resources NJR, Spire Inc. SR and Unitil Corporation UTL, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for New Jersey Resources, Spire, and Unitil’s 2023 earnings per share indicates increases of 2%, 9.3% and 7.34%, respectively.
Long-term (three- to five-year) earnings growth of New Jersey Resources, Spire, and Unitil is estimated at 6%, 4.22% and 7.08%, respectively.
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MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
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