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On Tuesday, BofA Securities shifted its stance on MDU Resources Group Inc. (NYSE:MDU) shares, raising the stock from Neutral to Buy. The upgrade follows the recent completion of the company's spin-off of its construction services business on November 1, 2024.
Despite a 4% decline in MDU shares post-spin-off, BofA Securities sees a compelling buying opportunity as the stock is currently trading 10% below the value suggested by their sum-of-the-parts valuation of the remaining portfolio.
MDU Resources is recognized for its robust growth potential as a utility company, with an anticipated 6-8% earnings per share (EPS) growth rate and no immediate need for equity financing. According to BofA Securities, MDU stands out in the small-cap utilities sector for these characteristics.
The firm also notes that MDU offers unique data center service opportunities, which are expected to support a mid-9% return on equity (ROE) for the electric business through 2028.
The analyst at BofA Securities highlighted the attractive aspects of MDU's business, including lower-than-average risk and higher-than-average EPS growth. These factors are believed to balance out the typical small-cap discount, justifying a valuation in line with the broader group of similar companies.
Consequently, the price target for MDU Resources has been set at $17.00, a decrease from the previous target of $31.00. This new target reflects the updated valuation post the spin-off event and the current market conditions.
In other recent news, MDU Resources Group announced robust second-quarter earnings of $60.4 million, with its pipeline segment and Everus Construction Services business recording earnings of $17.3 million and $39 million respectively. Meanwhile, BofA Securities downgraded MDU Resources stock to neutral, citing limited upside after a recent rally. Alongside this, the firm increased its price target for the company's stock to $31.00.
The company also revealed plans for a tax-free spin-off of its subsidiary Everus, marking a shift towards a regulated energy delivery business. As part of the spin-off, all outstanding shares of Everus common stock will be distributed to MDU Resources stockholders.
In leadership changes, Anthony D. Foti was appointed as the company's chief legal officer and corporate secretary, succeeding Paul R. Sanderson. Furthermore, the retirement of Vice President and Chief Information Officer Peggy Link was announced, with Dyke Boese named as her successor.
Lastly, MDU Resources unveiled the expected board of directors for Everus Construction Group following its planned spinoff into an independent company. The future board is set to include seven members, with six serving as independent directors. The company's strategic focus and commitment to its core operations are evident in these recent developments.
InvestingPro Insights
Recent data from InvestingPro adds depth to BofA Securities' bullish outlook on MDU Resources Group Inc. (NYSE:MDU). The company's P/E ratio of 7.66 and Price to Book ratio of 1.04 suggest that MDU is trading at attractive valuation multiples, potentially supporting BofA's view of a buying opportunity. This is further reinforced by an InvestingPro Tip indicating that MDU is "trading at a low earnings multiple."
MDU's financial health appears solid, with a revenue of $4.39 billion over the last twelve months and an operating income margin of 10.38%. The company's profitability is highlighted by another InvestingPro Tip, which notes that MDU has been "profitable over the last twelve months."
Investors may find comfort in MDU's dividend history, with an InvestingPro Tip revealing that the company "has maintained dividend payments for 54 consecutive years." This track record of consistent dividends aligns well with the stability often sought in utility stocks.
For those interested in a more comprehensive analysis, InvestingPro offers 5 additional tips on MDU Resources Group Inc., providing further insights into the company's financial position and market performance.
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