Critical Analysis: Black Hills Corporation (BKH) and MDU Resources Group (MDU)

MDU Resources Group (NYSE: MDU) and Black Hills Corporation (NYSE:BKH) are both mid-cap utilities companies, but which is the better stock? We will contrast the two businesses based on the strength of their profitability, earnings, analyst recommendations, dividends, institutional ownership, valuation and risk.

Profitability

This table compares MDU Resources Group and Black Hills Corporation’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
MDU Resources Group 5.37% 10.24% 3.76%
Black Hills Corporation 7.71% 10.48% 2.84%

Dividends

MDU Resources Group pays an annual dividend of $0.77 per share and has a dividend yield of 2.8%. Black Hills Corporation pays an annual dividend of $1.78 per share and has a dividend yield of 2.5%. MDU Resources Group pays out 67.0% of its earnings in the form of a dividend. Black Hills Corporation pays out 74.8% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. MDU Resources Group has increased its dividend for 7 consecutive years and Black Hills Corporation has increased its dividend for 47 consecutive years. MDU Resources Group is clearly the better dividend stock, given its higher yield and lower payout ratio.

Volatility & Risk

MDU Resources Group has a beta of 0.92, meaning that its stock price is 8% less volatile than the S&P 500. Comparatively, Black Hills Corporation has a beta of 0.8, meaning that its stock price is 20% less volatile than the S&P 500.

Earnings & Valuation

This table compares MDU Resources Group and Black Hills Corporation’s top-line revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
MDU Resources Group $4.23 billion 1.28 $617.43 million $1.15 24.05
Black Hills Corporation $1.70 billion 2.23 $588.78 million $2.38 29.76

MDU Resources Group has higher revenue and earnings than Black Hills Corporation. MDU Resources Group is trading at a lower price-to-earnings ratio than Black Hills Corporation, indicating that it is currently the more affordable of the two stocks.

Analyst Recommendations

This is a breakdown of current ratings for MDU Resources Group and Black Hills Corporation, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
MDU Resources Group 0 2 1 0 2.33
Black Hills Corporation 0 0 5 0 3.00

MDU Resources Group presently has a consensus target price of $32.00, indicating a potential upside of 15.69%. Black Hills Corporation has a consensus target price of $73.40, indicating a potential upside of 3.63%. Given MDU Resources Group’s higher probable upside, equities research analysts plainly believe MDU Resources Group is more favorable than Black Hills Corporation.

Institutional and Insider Ownership

63.6% of MDU Resources Group shares are owned by institutional investors. Comparatively, 94.0% of Black Hills Corporation shares are owned by institutional investors. 1.0% of MDU Resources Group shares are owned by company insiders. Comparatively, 1.1% of Black Hills Corporation shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Summary

Black Hills Corporation beats MDU Resources Group on 9 of the 17 factors compared between the two stocks.

MDU Resources Group Company Profile

MDU Resources Group, Inc. is engaged in regulated energy delivery and construction materials and services business. The Company’s businesses segments are electric, natural gas distribution, pipeline and midstream, construction materials and contracting, and construction services. The electric segment generates, transmits and distributes electricity. The natural gas distribution segment distributes natural gas. The pipeline and midstream segment provides natural gas transportation, underground storage, processing and gathering services, as well as oil gathering. The construction materials and contracting segment mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mixed concrete, asphalt, liquid asphalt and other value-added products. The construction services segment provides utility construction services in constructing and maintaining electric and communication lines, and external lighting and traffic signalization.

Black Hills Corporation Company Profile

Black Hills Corporation is a holding company. The Company is an integrated energy company, which is focused primarily on regulated utilities. The Company operates through segments, including Electric Utilities, Gas Utilities, Power Generation, Mining, Oil and Gas, and Corporate. As of December 31, 2016, the Electric Utilities segment generated, transmitted and distributed electricity to approximately 208,500 customers in South Dakota, Wyoming, Colorado and Montana. The Gas Utilities Segment includes the natural gas operations of Cheyenne Light. The Power Generation segment produces electric power from its generating plants and sells the electric capacity and energy principally to its utilities under long-term contracts. The Mining segment operates through its Wyodak Resources Development Corp. (WRDC) subsidiary. The Company’s Oil and Gas segment acquires, explores for, develops and produces natural gas and crude oil in the United States primarily in the Rocky Mountain region.

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