Investments and Increasing Customer Base Drive MDU Resources' Growth

MDU Resources, now focused on its regulated energy delivery business post-spinoffs, projects 6-8% long-term EPS growth and 1-2% annual customer expansion, supported by approximately $3.1 billion in regulated capital expenditures through 2029. The company is significantly capitalizing on data center demand, having secured 580 MW of load with 180 MW currently online, which drove a 12% increase in Q2 2025 Electric Utility retail sales. However, MDU faces operational challenges from aging natural gas infrastructure and business seasonality, risks that could impact service reliability and increase costs, contributing to its recent stock underperformance.

Analysis

MDU Resources has strategically pivoted to a pure-play regulated energy delivery business following the spinoffs of Knife River and Everus Construction. The company projects long-term earnings per share (EPS) growth of 6-8%, supported by a substantial $3.1 billion capital expenditure plan for 2025-2029 and anticipated annual customer growth of 1-2%. A key growth driver is the significant demand from data centers, with MDU having secured service agreements for 580 MW of load. This is already delivering tangible results, evidenced by a 12% increase in Electric Utility retail sales volumes during the second quarter of 2025. However, these positive catalysts are tempered by material risks. The company's aging natural gas infrastructure presents a significant operational threat, with the potential for failures, unplanned outages, and increased capital costs. This risk, combined with the inherent seasonality of its operations, creates potential for earnings volatility. The market appears to be focused on these headwinds, as MDU's stock has underperformed its industry peers, declining 7.1% in the past month against the industry's 1.4% gain.

Key Decisions for Investors

• Investors should closely monitor the execution of the $3.1 billion capital expenditure plan, specifically tracking progress on infrastructure upgrades and the on-schedule deployment of the remaining 400 MW of contracted data center capacity.
• Given the stock's recent underperformance against the broader industry, the current valuation could be seen as an entry point for those with a high conviction in the data center growth narrative, but this must be weighed against the significant operational risks from aging assets.
• It is prudent to watch for any announcements related to unplanned outages or higher-than-expected maintenance expenses, as these would be key indicators that infrastructure risks are materializing and could jeopardize the company's targeted 6-8% EPS growth rate.