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MDU Resources (MDU) Upgraded to Strong Buy: Here's Why

Zacks Equity Research

On May 24, 2016, Zacks Investment Research upgraded MDU Resources Group, Inc. MDU to a Zacks Rank #1 (Strong Buy).

What’s Driving the Stock?

MDU Resources’ first-quarter 2016 earnings outpaced the Zacks Consensus Estimate by 30.8%. Moreover, in the year-ago quarter, it had reported a loss of $1.57 per share. The company has posted a positive earnings surprise in two of the four trailing quarters, bringing the average surprise to 2.35%.

Going forward, the company is optimistic on its pipeline potential as well as the energy services market. Apart from improving its existing midstream operations, MDU Resources is also focused on accelerating growth through business expansion.

Since late 2015, the company has been pursuing deals to vend its oil and natural gas production and lease assets in a bid to focus on core areas. In Apr 2016, the company completed the sale of its oil and natural gas assets.

The company’s spin-off of its E&P business was aimed to lower its risk profile, which would allow it to focus on core business opportunities. Proceeds of $500 million generated from the transaction will be utilized to pay off debt associated with the E&P business. The company will channel the remaining funds to be utilized by other business units as well as to finance its five-year capital expenditure program worth $1.5 billion. Such systematic investments will help MDU Resources to cater efficiently to its expanding customer base, which is projected to grow 1.5–2% annually.

Further, MDU Resources’ construction business appears promising, given a solid backlog of nearly $1.4 billion in first-quarter 2016, up 38%. Meanwhile, its electric utility reaped the benefits of production tax credits associated with the 107.5-megawatt Thunder Spirit wind farm, which began commercial operations in late Dec 2015.

The Zacks Consensus Estimate for 2016 was raised 5.7% to $1.12 over the last 60 days. For 2017, the Zacks Consensus Estimate moved north 8.1% to $1.33 over the same time frame.

Other Stocks to Consider

Other favorably placed stocks in the same space include Clean Energy Fuels Corp. CLNE, AGL Resources Inc. GAS and Just Energy Group Inc. JE. While Clean Energy sports a Zacks Rank #1, both AGL Resources and Just Energy carry a Zacks Rank #2 (Buy).

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