On Monday, BofA Securities adjusted its stance on MDU Resources Group Inc. (NYSE:MDU), shifting its rating to Neutral from the prior Buy recommendation. Accompanying this downgrade, the firm also increased its price target for the company's stock to $31.00, up from the previous $30.00.
The decision to downgrade comes after the Investor Day event held by MDU Resources, where the company provided guidance for its Construction Services subsidiary, Everus. The pro forma guidance included a long-term revenue compound annual growth rate (CAGR) of 5-7% and an EBITDA CAGR of 7-9%. This guidance met the analyst's expectations and was seen as the last significant catalyst before the planned spin-off transaction set for October 31.
The analyst noted that both MDU and its subsidiary Everus are well-managed entities with sound, competitive, and achievable post-spin guidance. The analysis also took into account the newly issued guidance for Everus, which detailed expected revenues, EBITDA, and the impact of dis-synergies following the spin-off.
Despite the positive assessment of the companies' management and guidance, the analyst expressed that the current market price of MDU Resources reflects these attributes. The stock has shown strong performance, outpacing its utility peer group by 9% over the past month and registering a 53% increase year-to-date. This robust performance has led to the conclusion that the positive qualities are already factored into the stock's valuation, prompting the downgrade to Neutral.
In other recent news, MDU Resources Group has been making significant strides in its strategic focus. The company reported robust second-quarter earnings of $60.4 million, with the pipeline segment and Everus Construction Services business recording earnings of $17.3 million and $39 million respectively. However, the utility business saw a decrease in earnings due to lower volumes and increased operational maintenance expenses. In line with its long-term payout ratio goal, MDU Resources increased its common stock dividend by 4% to 13 cents per share.
In leadership changes, Anthony D. Foti was appointed as the company's chief legal officer and corporate secretary. The company also announced the retirement of Vice President and Chief Information Officer Peggy Link, with Dyke Boese named as her successor.
In a significant move, MDU Resources revealed plans for a tax-free spin-off of Everus, marking a shift towards a pure-play regulated energy delivery business. The company anticipates a 7% compound annual growth rate on the utility rate base and plans for $2.7 billion in regulated capital investments.
InvestingPro Insights
Recent data from InvestingPro provides additional context to BofA Securities' decision to downgrade MDU Resources Group Inc. (NYSE:MDU) to Neutral. The company's stock has indeed shown remarkable performance, with InvestingPro data revealing a 64.67% price total return over the past year and a 55.34% return year-to-date. This aligns with the analyst's observation of MDU's strong market performance.
InvestingPro Tips highlight that MDU is trading near its 52-week high, with the current price at 99.21% of its 52-week peak. This supports the analyst's view that positive attributes are already reflected in the stock's valuation. Additionally, MDU has maintained dividend payments for 54 consecutive years, showcasing its financial stability and commitment to shareholder returns.
However, investors should note that the RSI suggests the stock may be in overbought territory, which could indicate limited upside potential in the near term. This factor may have contributed to the analyst's decision to downgrade the stock.
For those seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for MDU Resources Group Inc., providing deeper insights into the company's financial health and market position.
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