I wanted to find a stable company to add to my portfolio. One with strong fundamentals, a decent dividend and solid growth potential. I came across MDU Resources, headquartered in North Dakota and operates as a diversified utility, pipeline, construction services company.
MDU Resources has continued to execute well amidst a challenging economy. It recently achieved near record-breaking results and has strategic investments planned for this year. I have highlighted some of the key points on my analysis below
Construction and utility provider MDU Resources (MDU) had a tough 2020. Construction projects were halted or delayed in a lot of cases, and utility stocks weren’t exactly in favor with investors during a period when growth stocks reigned supreme. Still, for long-term investors with an eye on value and yield, I think MDU is a great choice.
MDU Resources Group, Inc.’s MDU two-platform business model, strategic acquisitions, capital investments in the electric and natural gas utility plus improving backlog are its key tailwinds. Also, the company boasts enough liquidity to meet its near-term obligations.
Some key highlights on why I think it might be a good pick up for your portfolio
Consistent long-term growth at 9.3% EBITDA CAGR and 16.7% EPS CAGR
Runway of attractive organic and inorganic growth opportunities
Improving ROIC driven by rigorous capital allocation process
I find MDU to be attractively priced at $31.29, with a blended PE of 15.9. This sits below MDU's historical PE of 19.4 over the past decade,
Analysts also express a bullish view on the stock, with a consensus Buy rating and an average price target of $34.33, implying a 10% upside potential from the current share price.
Earnings are forecast to grow 6.74% per year and Earnings grew by 16.6% over the past year. If this trend continues, we will likely see a rise in the share price
Significant insider buying over the last year with a majority of shares purchased in May 2020. This would make sense considering the price dropped off a cliff just a month prior (see chart). The management team knew it was a bargain and acted on the low share price
Biden’s Infrastructure Plan - While I see potential tailwinds for MDU's construction business from Biden's proposed infrastructure plan, there's no guarantee that such a proposal will pass. The construction business is more cyclical than the regulated utility business, and adds complexity risk to MDU's business model.
Mild Dilution - MDU relies on both equity and debt to fund capital projects. This includes $100M in expected equity issuances this year, which will be mildly dilutive to shareholders
I'm encouraged by the impressive earnings it generated amidst a challenging economy. Based o some of the key factors and management guidance I see continued growth for MDU for the foreseeable future. I continue to find the valuation to be attractive and the dividend to be well-covered and safe. Consider looking at MDU and potentially adding it to your portfolio