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MDU Resources (MDU) on Buyout Spree, Acquires Two Companies

Knife River Corporation, the construction materials subsidiary of MDU Resources Group, Inc. MDU, completed the acquisition of two construction-related companies concurrently. Those are Baker Rock Resources and Oregon Mainline Paving, which mark MDU’s expanding operations in the Pacific Northwest.

The buyout will add Baker Rock’s estimated 83-88 million tons of construction aggregates to the Portland metro area, helping it meet rising demand. It produces asphalt from two plants. The other acquisition will support Knife River's vertically-integrated business model and enable it to focus on operations in the Northwest. Oregon Mainline has two portable asphalt plants and three paving crews.

Prior to this, in April, Knife River completed the buyout of Mt. Hood Rock, which provides construction aggregates in the eastern Portland and has an estimated 20 years of reserves, which enhanced Knife River’s presence in the market.

Both buyouts are likely to create efficiencies and growth opportunities for MDU in the future, adding high-quality construction aggregates, supporting vertical integration and expanding in the growing markets.

Capital Plans

After spending $648 million in 2020, MDU Resources spent $428.1 million in the first nine months of 2021 and curtailed investment plans to $775 million from $806 million in the ongoing year. These investments will increase MDU’s reliability of services to better serve an increasing customer base. MDU is likely to witness 1-2% customer growth in the electric and natural gas segments, annually, and rate base growth, seeing a 5% CAGR over the next five years.

On the construction materials and services platform, MDU targets organic growth and opportunistic acquisitions, which will supplement its existing operations and boost earnings. Knife River continues to expand its operation, inorganically. As of Sep 30, 2021, the construction materials business had a backlog of $652 million, up from $571 million year over year.

Peer Moves

Other gas distribution utilities, including Spire Inc. SR, UGI Corp. UGI and AtmosEnergy Corporation ATO are also expanding businesses on the back of their strategic capital investment plans.

Spire makes consistent investments to upgrade and maintain the existing infrastructure as well as expand 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.

UGI Corp. spent $674 million in fiscal 2021, marginally up from $665 million in the last fiscal year. UGI expects the same to amount to $990 million in fiscal 2022. These investments will assist in achieving the long-term annual earnings per share growth target in the range of 6-10%.

Atmos Energy invested $2 billion in fiscal 2021, of which 88% was spent to increase the safety and reliability of operations. ATO plans to invest in the range 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 the existing operations. The planned capex will result in 6-8% annual earnings growth over the same time frame.

Zacks Rank & Price Performance

MDU Resources currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

In the past year, shares of MDU have gained 10.9%, outperforming the industry’s 10% growth.

One Year Price Performance

Image Source: Zacks Investment Research

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