The Razor's Edge

2-Year Price History

Ockham's Rating

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MDU Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, MDU the high and low end of the Price to Sales per share ratios are 1.27x and 0.84x respectively.

Notice that MDU's current Price to Sales per share ratio is 0.72x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $20.33, MDU is 33% below where we would expect to see it. This will beneficially factor into our final analysis of MDU as it is not often that this stock sinks to these levels.

MDU Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of MDU, Ockham views their current Cash Earnings as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for MDU, the current level of Cash Earnings compared to its historical levels helps identify where MDU is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 8.31 and a historical low Cash Earnings per share ratio of 5.45, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for MDU? From the Ockham perspective, we are looking specifically at MDU to see if the market is recognizing the huge disparity between MDU's past stock price to Cash Earnings ratio to today's levels. At a difference of 34% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at MDU. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

MDU Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In MDU’s case, the estimated annual dividend is $0.62 resulting in a current dividend yield of 3.05%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from MDU against the historic high and low levels over the past 10 years. The highest dividend yield from MDU over this period was 5.12% while the lowest dividend yield was 1.73% Given this range, the current dividend yield for MDU is below its historical median and not terribly attractive from this perspective.