MDU Resources 5-Year Capital Plan Ups Regulated Spending

MDU Resources Group, Inc., (NYSE:MDU) announced its capital investment plans for the next five year period spanning from 2017 to 2021. The company aims to invest nearly $2.2 billion over the said time period, which is higher than its previous 5 year (2012-2016) expenditure of $2.16 billion.

Focus on Regulated Business

A major portion or 73.5% of the planned capital expenditure will be directed to strengthen its existing regulated operations. MDU Resources will invest $659 million in its Natural gas distribution, $582 million in its Electric business and $382 million in its Pipeline and midstream operations.

Thanks to its regular investments in its regulated business, the company expects its electric and natural gas utility to grow its rate base nearly 4% annually over the next five years on a compound basis.

The current growth projection is on a much larger base, as MDU Resources’ rate base has increased 11% compounded annually over the past five-year period. The company targeted to invest $1.84 billion or 84.7% of its planned capex for 2012 to 2016 time period in regulated business.

Why Invest in Regulated Business

MDU Resources Group, after selling its exploration and production and refining businesses, emphasized on its regulated energy delivery and construction materials and services businesses. The primary reason behind investing in these businesses is that these provide opportunities for growth with a lower business risk.

Details of the 5-year Capital Plan

MDU Resources’ construction materials and services businesses investments are focused primarily on normal equipment and plant replacements and upgrades. The passage of the $305 billion, five-year highway bill for funding of transportation infrastructure projects will create more growth opportunity for this business.

The utility’s five-year capital investment program includes construction of a 345-kilovolt transmission line from Ellendale, ND, to Big Stone City, SD, about 160 miles, which is expected to be completed in 2019.

The company will also concentrate on Valley Expansion project, a 38-mile pipeline that will deliver natural gas supply to eastern North Dakota and far western Minnesota.

Our View

We believe the ongoing capital investments in its core operations will ensure higher returns and help the company to create long-term value for its shareholders.

Zacks Rank & Key Picks

MDU Resources currently has a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are ONE Gas, Inc. (NYSE:OGS) , Southwest Gas Corporation (NYSE:SWX) and Vectren Corporation (NYSE:VVC) . All these stocks currently have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for 2016 for ONE Gas, Southwest Gas Corporation and Vectren Corporation moved up by 0.8%, 0.9% and 0.8%, respectively in the last 60 days.

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