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MDU Resources' (MDU) Systematic Capital Investments Bode Well

Zacks Equity Research

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

We issued an updated research report on this 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 is pegged at 5%.

What’s Driving 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 to balance such seasonality related risks that affect demand.

The company’s capital expenditures for the first three months of 2020 amounted to $188.9 million. The company expects to invest $594 million for 2020. These investments will increase reliability of services and enable the company to serve increasing customer base effectively. The company expects rate base growth by 5-8% on a compounded annual basis over the next five years. The company expects to invest $1,990 million through 2020-2022.

At the end of the first quarter, total liquidity of the company was $548.3 million, which will be enough to meet the near-term debt obligation of the company. The company has a trailing four-quarter positive earnings surprise of 28%, on average. Steady earnings enable the company to distribute regular dividend to its clients. MDU Resources is paying out dividends for the past 82 consecutive 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 tally. The rising backlog can be attributed to the geographic diversity of construction operations and improving economic conditions in service territories.

However, unfavorable weather conditions, strict government regulations and intense competition are concerns.

Price Performance

In the past 12 months, shares of the company have lost 12.2% compared with the industry's decline of 17.5%.

Stocks to Consider

A few better-ranked stocks from the same sector are Southwest Gas Corporation SWX, Sempra Energy SRE and NextEra Energy, Inc. NEE. All the three stocks hold a Zacks Rank #2 (Buy) at present.

The long-term earnings growth rate of Southwest Gas, Sempra Energy and NextEra Energy is pegged at 6%, 7% and 7.70%, respectively.

Southwest Gas, Sempra Energy and NextEra Energy reported a positive earnings surprise of 3.92%, 32.76% and 7.69%, respectively, in the last reported quarter.

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Sempra Energy (SRE) : Free Stock Analysis Report
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MDU Resources Group, Inc. (MDU) : Free Stock Analysis Report
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