In the face of cooler-than-expected weather conditions and rising operation costs, regulated energy delivery, construction materials, and service business, MDU Resources Group (MDU) has faced it all. Despite all the above, the company has shown resilience and adaptability with strategic rate relief initiatives that helped offset inflation impacts. It reinforces the importance of proactive infrastructure management as the total retail customer base increased by 1.5%. The Q2 revenue of $1.05 billion was backed by the successful construction of an 88-megawatt combustion turbine and the record earnings from its pipeline and construction services.
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Additionally, the construction services segment experienced record earnings and backlog despite a mild decrease in revenue, showing promising signs for the company’s growth trajectory. The stock is up 35% year-to-date and shows signs of potential further upside, making it a solid option for investors looking for exposure to the energy industry.
MDU Resources Has Expansive Operations
MDU Resources Group provides natural resource products and relevant services to the energy and transportation infrastructure sectors. The company’s operations span various business segments, including Electric, Natural Gas Distribution, Pipeline and Midstream, Construction Materials and Contracting, and Others.
The Electric segment generates, transmits, and distributes electricity in regions like Montana, North Dakota, South Dakota, and Wyoming. The Natural Gas Distribution segment focuses on distributing natural gas in eight states, including Montana, North Dakota, and Washington. Meanwhile, the Pipeline and Midstream segment offers services like natural gas transportation, storage, processing, and oil gathering through regulated and non-regulated pipeline systems and processing facilities.
Additionally, MDU Resources Group has a regulated energy delivery operation and construction materials and services businesses across the United States. These operations service various customers, including manufacturing, commercial, industrial, transportation, institutional, renewable, government clients, and utilities.
Analysis of MDU’s Recent Financial Results
The company recently announced its second-quarter results for 2024. Revenue of $1.05 billion fell slightly short of analysts’ expectations of $1.06 billion. Despite cooler weather, the utility business demonstrated robust results, credited to strategic rate adjustments and growing infrastructure investments. The pipeline segment reported record earnings for Q2, propelled by unprecedented transportation volumes and increased storage revenue.
The construction services segment also saw a surge in earnings and a significant backlog of work. Earnings per share (EPS) of $0.32 exceeded analysts’ expectations of $0.21.
The board of MDU Resources Group, Inc. has decided to raise the quarterly dividend on its common stock to $0.13 per share, amounting to a dividend yield of 2.06%. The company aims to maintain a long-term dividend payout ratio between 60% and 70% of regulated energy delivery earnings.
Following second-quarter results, MDU’s management has updated its guidance for 2024. It maintains its earnings guidance for regulated energy delivery businesses between $170 million and $180 million but revises its construction services revenue guidance down to a range of $2.65 billion to $2.85 billion, a decrease from the previous range of $2.9 billion to $3.1 billion. The anticipated EBITDA remains constant at $220 million to $240 million.
Is MDU a Buy?
The stock has demonstrated lower volatility with a beta of 0.76, as it has climbed over 40% in the past three years. It trades at the high end of its 52-week price range of $18.04 – $27.78 and shows positive price momentum by trading above its 20-day (25.42) and 50-day (25.20) moving averages. With a P/E ratio of 13.2x, it trades in line with the Industrial Conglomerates industry average of 13.6x.
Wall Street thinly follows the stock, though over the last 90 days, it has garnered three Strong Buy ratings. For instance, BofA Securities analyst Ross Fowler recently reinstated coverage with a Buy rating and a price target of $28, noting MDU’s ongoing transition to a pure-play regulated utility and pipeline operator, and expects sustained support for earned ROEs at the electric utility, driven by a strong pipeline of data center customer connections in areas experiencing transmission congestion.
MDU in Final Analysis
MDU Resources Group has proven its resilience by implementing strategic initiatives that have buffered inflation impacts and facilitated a growing customer base. The company has solidified its position in the energy industry by leveraging its diverse operations across sectors such as electric, natural gas distribution, pipeline, and construction services. As the company transitions towards a pure-play regulated utility and pipeline operator, it remains poised for sustained growth, underpinned by strategic investments in infrastructure and novel service delivery frameworks.
Despite a slight dip in expected revenues, MDU’s dividend payout and strong price momentum make it an attractive option for investors looking for stable yet innovative energy sector exposure.
