MDU Resources Group’s MDU planned investments in electric and natural gas utility projects and strong fundamentals will continue boosting its performance.
Let’s focus on the factors that make this currently Zacks Rank #2 (Buy) stock a strong investment pick at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growth Projections & Long-Term Earnings Growth
The Zacks Consensus Estimate for 2021 and 2022 earnings per share is pegged at $1.99 and $2.21, respectively, suggesting growth of 2.05% and 11.06% each from the corresponding year-ago figures .
Long-term (three to five years) earnings growth is currently pegged at 6.81%.
Return on Equity & Dividend Yield
Return on Equity (ROE) indicates how efficiently a company is utilizing its shareholders’ funds to generate returns. At present, its ROE is 12.69%, higher than the industry average of 10.24%. MDU’s better ROE than the industry indicates that it is using its funds more efficiently than peers in the same space.
Steady earnings generation enables MDU to distribute regular dividend to its shareholders. MDU Resources has beenpaying out dividend for the past 84 consecutive years. It raised the annual dividend in November 2021, marking the 31st straight year of increase. Its new annualized dividend is 87 cents per share. Currently, MDU has a dividend yield of 2.80%, higher than the Zacks S&P 500 composite’s average of 1.31%.
Total debt to total capital at the end of the third quarter was 41.65%, down from 42.73% on a sequential basis. As of Sep 30, 2021, the utility had cash and cash equivalents worth $57.3 million and an available borrowing capacity of $694.7 million under its outstanding credit facilities. This shows that MDU currently has ample liquidity to meet its near-term debt obligations.
At third-quarter 2021 end, it had a times interest earned (TIE) ratio of 6.30, up from 5.92 at 2020 end. Its improving TIE ratio indicates its ability to meet debt obligations without any difficulty.
Investments &Customer Growth
MDU Resources makes consistent investments to upgrade and maintain the existing infrastructure as well as expand operations. MDU anticipates investing $992 million in 2021and announced a five-year capital investment plan worth $3,025 million starting 2022, which will increase the reliability of services and enable MDU to serve an increasing customer base, effectively. MDU expects to see rate base growth over the next five years at 5%. MDU is likely to witness 1-2% customer growth in these segments, annually. Steady expansionin the customer base is likely to boost demand and drive its performance in the long run.
Other such utilities that continue to enhance the reliability of its services via consistent investments, include UGI Corp. UGI, Spire Inc. SR and Atmos Energy Corporation ATO.
UGI Corp. continues to make systematic capital investments to address the infrastructural need for various capital projects, carry out acquisitions to curb competition for increasing the safety and reliability of natural gas production and storage facilities plus replace the aging infrastructure for modernizing the system. UGI spent $674 million in fiscal 2021, marginally up from $665 million in the last fiscal year and expects the same to amount to $990 million in fiscal 2022. These investments will assist it in achieving the long-term annual earnings per share growth target in the range of 6-10%.
Spire makes consistent investments to upgrade and maintain the existing infrastructure as well as expand its operations. SR invested $624.8 million in fiscal 2021 and plans to spend $3.1 billion during the fiscal 2022-2026 time period. These investments will increase the reliability of gas services, enabling it to serve an increasing customer base, effectively. SR expects this systematic investment to drive 7-8% rate base growth over the long term.
Atmos Energy invested $2 billion in fiscal 2021, of which 88% was spent on increasing the safety and reliability of its operations. ATO plans to invest in the band of $2.4-$2.5 billion for fiscal 2022 and spend $13-$14 billion from fiscal 2022 through 2026, of which more than 80% will be allocated to enhance the safety of its existing operations. The planned capex will result in 6-8% annual earnings growth over the same time frame.
In the past month, the stock has gained 6.9% compared with the industry’s growth of 5.9%.
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