Back to top

Image: Bigstock

Should Value Investors Pick MDU Resources (MDU) Stock Now?

Read MoreHide Full Article

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put MDU Resources Group, Inc. (MDU - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, MDU Resources has a trailing twelve months PE ratio of 15.4, as you can see in the chart below:
  Zacks Investment Research
Image Source: Zacks Investment Research

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 25.6. If we focus on the long-term PE trend, MDU Resources’ current PE level puts it somewhat below its midpoint over the past five years.

Zacks Investment Research
Image Source: Zacks Investment Research

Further, the stock’s PE also compares favorably with the sector’s trailing twelve months PE ratio, which stands at 18.5. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

Zacks Investment Research
Image Source: Zacks Investment Research

We should also point out that MDU Resources has a forward PE ratio (price relative to this year’s earnings) of just 15.3, so we might say that the forward earnings estimates indicate that the company’s share price will likely appreciate in the near future.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, MDU Resources has a P/S ratio of about 1.2. This is somewhat lower than the S&P 500’s average of 5.1. Also, as we can see in the chart below, this is slightly below the highs for this stock in particular over the past few years.

Zacks Investment Research
Image Source: Zacks Investment Research

If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, MDU Resources currently has a Zacks Value Style Score of B, putting it into the top 40% of all stocks we cover from this look. This makes MDU Resources a solid choice for value investors, and another key metric makes this pretty clear too.

For example, the PEG ratio comes in at 2.2, (which is somewhat better than the industry average of 2.7). Clearly, MDU is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though MDU Resources might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of B and a Momentum score of C. This gives MDU a Zacks VGM score—or its overarching fundamental grade—of B. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen one estimate go higher and none lower in the past sixty days, while that for full-year 2022 has seen two up and none down in the same time period.

As a result, the consensus estimate for the current year has improved by 1.9% while the same for full-year 2022 has risen2.3%in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:
 

Despite having a bullish trend, MDU sports a Zacks Rank #3 (Hold). This indicates that analysts have some apprehensions about the stock in the immediate future. Thus, we are looking for in-line performance from the company in the near term.

Bottom Line

MDU Resources is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, a strong industry rank (top 46% out of more than 250 industries) further supports the growth potential of the stock. However, with a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the industry has clearly underperformed the broader market, as you can see below:
Zacks Investment Research
Image Source: Zacks Investment Research

So, despite a Zacks Rank #3, we believe that bullish analyst sentiment and favorable industry factors make this value stock a compelling pick.


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


MDU Resources Group, Inc. (MDU) - free report >>