Black Hills (BKH) Could Be 12% Undervalued As Rate Base Growth Comes Into Focus

How Black Hills Stock Has Been Trading Recently

Black Hills (BKH) has drawn attention after a recent move that left the stock with a 0.9% daily gain and modest positive returns over the past month and past 3 months.

For investors tracking utilities, this recent trading pattern around Black Hills offers a reference point to compare against the company’s income profile, business mix and longer term total return record.

At a latest share price of $73.30, Black Hills has delivered a 5.2% year to date share price return, while the 1 year total shareholder return of 27.9% and 3 year total shareholder return of 55.3% point to momentum that has been building rather than fading.

Compare Black Hills' recent run against a hand picked set of income focused utilities by scanning the 11 dividend fortresses alongside it.

Bulls point to Black Hills' recent total return record and income profile. Bears focus on its value score of 2 and an intrinsic value that appears 9.5% above the share price. Which side does the current valuation support next?

Most Popular Narrative: 12.1% Undervalued

At a last close of $73.30, the most followed narrative around Black Hills points to a fair value near $83.40, which frames today’s price as a discount while hinging heavily on long term infrastructure and data center growth.

Large-scale capital investments such as the Ready Wyoming transmission expansion, Lange II natural gas generation, and Colorado Clean Energy Plan renewables projects are expected to materially expand Black Hills' regulated rate base. This is described as enabling predictable, above sector average long term earnings and net margins through constructive rate recovery mechanisms and innovative tariffs.

Read the complete narrative. Read the complete narrative.

Want to see what underpins that fair value gap? The narrative leans on brisk earnings growth, richer margins and a future earnings multiple below many current peers.

Result: Fair Value of $83.40 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, Black Hills investors still need to weigh execution risk on large capital projects, along with the dependence on concentrated data center and blockchain demand holding up.

Find out about the key risks to this Black Hills narrative.

Another View On Black Hills Valuation

The earlier narrative leans on analyst forecasts and a fair value of $83.40 for Black Hills. Our DCF model points to a different conclusion, with an estimated future cash flow value of $66.95 against the current $73.30 share price, which frames the stock as overvalued on this basis. Which lens do you trust more?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Black Hills for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 52 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With both risks and rewards in play for Black Hills, it helps to move quickly and test the numbers yourself. To balance the concerns and the upside, start by reviewing the 3 key rewards and 2 important warning signs.

Looking For More Investment Ideas Beyond Black Hills?

If Black Hills has your attention, do not stop here. Broaden your watchlist with other focused ideas that could help refine your overall portfolio positioning.

• Target potential mispricings by scanning a curated set of companies that pair quality fundamentals with attractive valuations through the 52 high quality undervalued stocks.
• Strengthen your income stream by reviewing a hand picked group of higher yielding companies labelled as 11 dividend fortresses.
• Identify early stage opportunities with healthier balance sheets and solid metrics by checking the 21 high quality undiscovered gems.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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