MDU

MDU Resources ($MDU) CFO's August Purchase Signals Executive Confidence...Post-Spinoff Undervaluation Opportunity

08/19/2025 20:40

Jason Vollmer, Chief Financial Officer of MDU Resources Group ($MDU), purchased 5,000 shares for $81,375 on August 19th. The average purchase price of $16.27 per share was close to the market price at the time, signaling management's confidence in the company's intrinsic value at current levels. MDU Resources is a mid-cap utility company operating electric power services across Montana, North Dakota, South Dakota, and Wyoming, with natural gas distribution networks spanning eight states. The company completed its strategic spinoff of Everus Construction Group in October, focusing entirely on regulated energy infrastructure businesses. Founded in 1924, the company employs approximately 2,052 people with a market capitalization of around $3.3 billion. Vollmer's purchase marks the second insider buying activity this year. In February, Director Dennis Johnson acquired 30,000 shares for $499,200 ($16.64 per share). Both insider purchases occurred in the mid-$16 range, strongly suggesting management views current share prices as undervalued relative to the company's fundamentals. $MDU's stock price indeed fell 47% from around $28 in late October to $14.76 in early November following the spinoff completion. While this represented a mechanical adjustment due to the construction business separation, the market is still determining fair value for the company's new business structure. As of August 18th, the stock trades at $16.22, within the range where insider buying has been concentrated. Spinoff effects are clearly visible in recent financial results. Q2 2025 revenue dropped 66.5% year-over-year to $351.2 million, while net income declined 77% to $13.7 million. However, this reflects the accounting treatment of the construction business as discontinued operations. In core businesses, the electric utility segment saw 12% growth in retail sales volumes driven by data center demand, while natural gas distribution added 1.5% more customers. The company provided 2025 EPS guidance of $0.88-$0.95 and targets long-term annual EPS growth of 6-8%. Management announced substantial capital expenditure plans of $539 million in 2025 and $811 million in 2026, focusing on electric grid upgrades, natural gas distribution expansion, and pipeline growth projects. Current valuation metrics appear attractive. $MDU trades at a P/E ratio of 18.4x, below the utility sector average of 20x, and a P/S ratio of 1.8x, in line with sector norms. The dividend yield of 3.45% with a 59% payout ratio offers compelling income prospects for yield-focused investors. However, some concerns warrant attention. The current ratio of 0.74 indicates potential short-term liquidity constraints, while the debt-to-equity ratio of approximately 80% reflects the capital-intensive nature of utility operations. Year-to-date stock returns of -8.99% also show recent underperformance. Yet Vollmer's purchase aligns with several positive indicators. Institutional ownership stands at 81%, demonstrating continued institutional interest, while the stock's beta of 0.46 indicates lower volatility than the broader market. Analysts maintain an average 'buy' rating with a 12-month price target of $19, suggesting over 17% upside potential from current levels. From an investment perspective, $MDU presents a transitional opportunity. As spinoff-related disruptions subside, the stable cash flows and growth potential of regulated utility operations are likely to be revalued. Key growth drivers include increasing data center power demand, natural gas infrastructure expansion, and renewable energy project participation. Given the concentration of insider buying in the mid-$16 range, current price levels appear attractive for medium to long-term investors. However, short-term earnings volatility and liquidity considerations require ongoing monitoring.