BLACK HILLS CORP /SD/ (BKH): what the price assumes

boothcheck covers BLACK HILLS CORP /SD/ (BKH) but does not put one priced-in number on it: here the defensible answer is the evidence rather than a point estimate. boothcheck publishes no house fair value, target price, or buy/sell rating. Narrative composed 2026-07-25.

Generated: 2026-08-30 · Exported: 2026-08-31 · Source: https://boothcheck.com/report/BKH

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.

Solve inputs: computed at a 6.3% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

Every valuation family lands below the price. The price therefore sits beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that call it expensive: Asset, Earnings, Relative

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 5.6%); the inversion above states its own rate.

Per-Model Detail (n=13)

Economic-Unit Decomposition (Sum Of The Parts)

Material operating units span distinct economics, so a single sector multiple or target margin is not representative. Consolidated cash-flow lenses may remain as secondary checks, while segment SOTP is primary.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Bullet Takeaways

• The market is paying for the natural gas half of this utility to get smaller, roughly 3.5% a year in operating profit over five years, at the same time the electric half is building toward a 1.8 gigawatt data center interconnection in Cheyenne with service targeted for early 2028.
• Returns are the sore point: trailing earnings of $3.84 per share against book value of $52.19 per share works out near 7.3%, below the roughly 9.3% required return used to value the equity, which is what under-earning an authorized return looks like on the income statement.
• Two dates matter more than the operating quarter: second-quarter results land after the close on August 5, 2026, and the all-stock merger of equals with NorthWestern Energy, already approved by both shareholder bases, is expected to close in the second half of 2026.

Bull Case

The strangest number in this utility is what the market assumes about its gas business. Invert the price and the natural gas segment is carrying an assumption of operating profit declining about 3.5% a year over the next five years. That is a single solve under fixed assumptions and it moves a great deal with the discount rate, so hold it loosely. But the direction is unmistakable, and it sits oddly beside what is actually happening at the company, because the growth event here is on the electric side and it is the largest in the company's recent history. The FY2025 10-K notes that in 2025 "Wyoming Electric continued to grow its large-load demand from existing" customers, and by June 2026 the company reported progress on a 1.8 gigawatt data center project in Cheyenne, including equipment procurement, substation filings, and more than 200 million dollars of refundable customer construction contributions, with service targeted for early 2028.

The structure of that last detail is the part worth pausing on. In a regulated utility, growth is not a marketing achievement. It is capital placed into rate base, on which the regulator allows a return. The 10-K puts it plainly: the regulated utilities are "subject to cost-of-service/rate-of-return regulation and earnings oversight from federal and state" commissions. That means the interesting question is never whether demand exists but who funds the pipes and wires to serve it. Construction contributions paid by the customer are capital the company does not have to raise, and for a business whose share count has been growing about 4% a year to fund investment, capital it does not have to raise is worth more than the headline suggests.

The underlying business is about as plain as a listed company gets. Operations run through two segments, Electric Utilities, which "generates, transmits and distributes electricity", and Gas Utilities, with retail service accounting for about 82% of revenue and the remainder spread across transportation, transmission and off-system sales. Trailing operating income is 568.1 million dollars on revenue of roughly 2.29 billion, so close to a quarter of every revenue dollar reaches the operating line. That is respectable company in this cohort: SR converts 21.5% of 2.54 billion dollars of revenue, NJR 23.8% of 2.18 billion, and SWX 24.4% of 2.02 billion, while the much larger ATO manages 35.9% of 4.88 billion.

And the shareholder gets paid to wait. The dividend runs 2.81 dollars a share against a share price of $75.33, a yield well above what a five-year Treasury pays, funded by regulated cash flows rather than by a payout policy that depends on a good year. The honest concession is that this is not a fast-growing enterprise and the balance sheet is doing real work to keep the investment program going. But a utility priced as though half of it is in decline, while the other half prepares to serve gigawatt-scale load, is at minimum an asymmetry worth naming.

Bear Case

One variable moves this company more than any other, and it is not electricity demand. It is the interest rate, and it presses from three sides at once. It sets the cost of the borrowings that fund the investment program, it sets the discount an income-seeking buyer applies to a dividend stream, and through regulatory lag it decides how long the company absorbs higher costs before rates catch up. Net borrowings run about 4.63 billion dollars against trailing operating profit of 568.1 million, which is roughly 8.2 times operating profit, and interest is covered only about 2.8 times over. For a business whose earnings are set by a commission rather than by a market, that is not a comfortable amount of room.

The deeper problem is that the equity is not currently earning what it costs. Trailing earnings of $3.84 per share against book value of $52.19 per share is a return near 7.3%, while the required return applied to that equity is about 9.3%. A regulated utility earning below its cost of capital is destroying a little value with every dollar it invests, and the methods that begin from the balance sheet say so bluntly: the book-value-and-profitability approaches leave the price roughly 107% above where they land, and the earnings-power methods about 95% above. Only the peer-multiple lens reaches the price, and it reaches it by observing that utilities trade at utility multiples. That is a comparison, not a defence. The 10-K is candid about the mechanism, warning that the company "may be subject to unfavorable or untimely federal and state regulatory outcomes" and that "regulatory delay in adjusting rates as a result of reduced customer usage" can hurt results.

On the gas side, the structural threat is named in the filing itself. The 10-K states that "electrification initiatives in our service territories could negatively impact demand for natural gas and decrease future growth", and separately lists "Our customers' focus on energy conservation which may be assisted by emerging technologies" among the pressures on usage. This is the rare case where the market's assumption and the company's own risk disclosure point the same direction. The price already embeds gas operating profit shrinking about 3.5% a year. The filing describes exactly the forces that would produce that outcome.

The electric growth story has a specific soft spot as well. The 10-K warns that customer growth "can be negatively impacted by population declines or the loss of large-load industrial customers (including data center facilities)", and as of June 2026 the Cheyenne project's original development partner was no longer involved, with the company working with a potential customer to advance it. Gigawatt-scale load that is planned is not the same as load that is contracted. Meanwhile the equity base keeps widening, with the share count up about 4% a year since March 2022, so each year's earnings are divided across more shares before any of this reaches a per-share result. The bear case here is not that the lights go out. It is that a levered, under-earning utility funding growth with new shares is a slow way to compound, and the price is not asking for a discount to reflect that.

Valuation

The natural gas segment is the piece carrying the market's assumption, and the assumption is subtraction. Inverting today's price puts gas operating profit declining roughly 3.5% a year over the next five years. Treat that as a rough read rather than a measurement: it comes from one solve at one discount rate, and a single percentage point on that rate swings the implied growth by around nine points. What it establishes is the sign, not the size. The market is not paying for the gas business to expand.

The more reliable signal is how the methods line up against each other, and they line up in one direction. The peer-multiple lens lands essentially on top of the current price. Everything anchored to what the company actually earns or owns lands beneath it: the cash-flow methods put the price about 61% above their central estimate, the earnings-power methods about 95% above, and the book-value-and-profitability methods about 107% above. The mechanism behind that last figure is worth spelling out, because it is the whole argument. Trailing earnings of $3.84 per share sit on book value of $52.19 per share, a return near 7.3% on the equity actually invested, while the cost of that equity runs about 9.3%. When a company earns less on its book than the book costs to fund, the arithmetic says the equity is worth less than its carrying value. The peer lens does not disagree with that arithmetic. It simply prices the company against other utilities rather than against its own returns.

The operating base under all of this is straightforward and disclosed. The business runs through two reportable segments, Electric Utilities and Gas Utilities, with retail service about 82% of revenue and the rest in transportation, transmission and off-system sales. Trailing revenue is about 2.29 billion dollars and trailing operating income 568.1 million. On the gas side the 10-K describes a Choice Gas Program supplying "approximately 48,000 retail distribution customers" in Nebraska and Wyoming, one of several small regulated pieces that together make the segment.

Compared with the gas cohort the profitability is mid-pack rather than distinguished. ATO turns 35.9% of 4.88 billion dollars of revenue into operating profit, SWX 24.4% of 2.02 billion, NJR 23.8% of 2.18 billion, and SR 21.5% of 2.54 billion. On the electric side, XEL runs 18.0% of 14.78 billion and AEP 24.2% of 22.26 billion. This company sits among them rather than above them, which is consistent with a price the peer lens defends and the return-based methods do not.

The balance sheet is where the risk concentrates. Net borrowings of about 4.63 billion dollars amount to roughly 8.2 times operating profit, with interest covered about 2.8 times, and the share count has grown about 4% a year since March 2022 as equity has been issued to fund the investment program. Against that, the dividend of 2.81 dollars a share is being paid out of regulated revenue rather than out of a cyclical upswing. One last thing conditions every number above: the company has shareholder approval for an all-stock merger of equals with NorthWestern Energy expected to close in the second half of 2026, so the standalone figures here describe the business as it currently files, not the company that is likely to exist by year end.

Catalysts

The largest pending item is not an operating one. On August 18, 2025 the company signed a definitive agreement with NorthWestern Energy Group for a tax-free all-stock merger of equals, under which NorthWestern shareholders receive 0.5856 Black Hills shares for each of theirs, forming a combined regulated energy company to be named Bright Horizon Energy Corporation with roughly 1.35 million electric and natural gas customers across eight states. Both shareholder bases approved the transaction and its related proposals at special meetings on April 2, 2026. Nebraska regulators approved in May 2026, with the parties agreeing to a moratorium on general base rate increases running to May 1, 2027 for NorthWestern in that state and to May 1, 2028 for Black Hills. Approvals in Montana and South Dakota and at the federal level remain outstanding, and the companies expect to close in the second half of 2026.

The operating story to watch is in Cheyenne. In June 2026 the company reported continued progress on a proposed 1.8 gigawatt data center project, including equipment procurement, regulatory filings for new substation infrastructure, and more than 200 million dollars of refundable customer construction contributions, with service anticipated to begin in early 2028. The original development partner is no longer involved, and the company described working with a significant potential customer to carry the project forward. For a utility of this size, a load of that scale is not an incremental customer. It is a step change in rate base, and the sequence to follow is contract, then regulatory approval, then construction, in that order.

Second-quarter results are scheduled for release after the market closes on August 5, 2026, with the conference call the following morning. Given the pending combination, the more informative content of that call is likely to be the regulatory calendar rather than the quarter itself. Rate reviews and merger conditions are what determine the earnings this company is permitted to make.

Peer Cohorts (Per Segment, With Filing Citations)

Electric Utilities (reported)

• NEE (NextEra Energy Inc)
• FY2025 10-K: …iso4217:USD xbrli:shares nee:agreement nee:county xbrli:pure utr:kWh utr:MW nee:unit nee:facility utr:Btu utr:MWh utr:MMBTU utr:bbl nee:customer nee:state nee:investment utr:mi nee:variable_interest_entity utr:Rate nee:segment 0000753308 2025-01-01 2025-12-31 0000753308 nee:FloridaPowerLightCompanyMember 2025-01-01…
• FY2025 10-K: …the acquisition and retirement of an electric generation facility (see Note 1 - Rate Regulation) and capacity payments related to PPAs; • Energy Conservatio n - costs associated with implementing energy conservation programs; and • Environmental - certain costs of complying with federal, state and local environmental…
• DUK (DUKE ENERGY CORPORATION)
• FY2025 10-K: ElectricityUsRegulatedMember duk:CommercialMember duk:ProgressEnergyMember duk:ElectricUtilitiesandInfrastructureMember 2025-01-01 2025-12-31 0001326160 us-gaap:ElectricityUsRegulatedMember duk:CommercialMember duk:DukeEnergyProgressMember duk:ElectricUtilitiesandInfrastructureMember 2025-01-01 2025-12-31 0001326160…
• FY2025 10-K: …commissions approve rates for Duke Energy's retail electric service within their respective states. The state utility commissions, to varying degrees, have authority over the construction and operation of EU&I's generating facilities. CPCNs and CECPCNs issued by the state utility commissions, as applicable, authorize…
• SO (SOUTHERN CO)
• FY2025 10-K: …behalf of the traditional electric operating companies, also has a contract with SEPA providing for the use of the traditional electric operating companies' facilities at government expense to deliver to certain cooperatives and municipalities, entitled by federal statute to preference in the purchase of power from…
• FY2025 10-K: …Regulation States The traditional electric operating companies and the natural gas distribution utilities are subject to the jurisdiction of their respective state PSCs or applicable state regulatory agencies. These regulatory bodies have broad powers of supervision and regulation over public utilities operating in…
• AEP (AMERICAN ELECTRIC POWER CO INC.)
• FY2025 10-K: …or holding company. In addition, both the FERC and state regulators are permitted to review the books and records of any company within a holding company system. COMPETITION The Vertically Integrated Utilities primarily generate, transmit and distribute electricity to their retail customers in their service…
• FY2025 10-K: …costs that are no longer probable of future recovery. Management is unable to predict the future impact to net income, cash flows and financial condition arising from the future changes in OPCo's rate setting mechanisms and the elimination of OPCo's ability to recover from, or refund to, customers the difference…
• D (DOMINION ENERGY, INC)
• FY2025 10-K: …riders; • A $173 million increase in sales to electric utility retail customers, primarily due to an increase in cooling degree days during the cooling season ($107 million) and an increase in heating degree days during the heating season ($66 million); • A $155 million increase in sales to electric utility retail…
• FY2025 10-K: …of its consolidated subsidiaries (including Enbridge Elephant Holdings, LLC, Enbridge Parrot Holdings, LLC and Enbridge Quail Holdings, LLC), or the entirety of Enbridge Inc. and its consolidated subsidiaries EPA U.S. Environmental Protection Agency EPACT Energy Policy Act of 2005 EPS Earnings per common share ERISA…
• EXC (EXELON CORPORATION)
• FY2025 10-K: Registrants) and natural gas and gas distribution services (PECO, BGE, and DPL) to residential, commercial, industrial, and governmental customers through regulated tariff rates approved by state regulatory commissions. Delivery of electricity and/or natural gas. Over time (each day) as the electricity and/or natural…
• FY2025 10-K: …injection and absorption of power during electric supply and demand imbalances. As forecasted load increases, the lack of sufficient energy storage growth may also lead to greater price volatility and challenges in power services for customers. The Utility Registrants' respective ability to deliver electricity, their…
• XEL (XCEL ENERGY INC)
• FY2025 10-K: …Protection Agency ERCOT Electric Reliability Council of Texas FASB Financial accounting standards board FERC Federal Energy Regulatory Commission IRS Internal Revenue Service MPUC Minnesota Public Utilities Commission MPSC Michigan Public Service Commission NDPSC North Dakota Public Service Commission NERC North…
• FY2025 10-K: …transmits, distributes and sells electricity. NSP-Minnesota and NSP-Wisconsin electric operations are managed on the NSP System. NSP-Wisconsin also purchases, transports, distributes and sells natural gas to retail customers and transports customer-owned natural gas. Natural gas customers 0.1 million Total assets…

Gas Utilities (reported)

• ATO (ATMOS ENERGY CORP)
• FY2025 10-K: …conserve their use of gas or choose another energy product, reduced gas purchases and customer billings could adversely impact our business. In the case of industrial customers, such as manufacturing plants, adverse economic conditions, including higher gas costs, could cause these customers to use alternative…
• FY2025 10-K: …3.4 million residential, commercial, public-authority, and industrial customers through our six regulated distribution divisions in the service areas described below: Division Service Area Atmos Energy Colorado-Kansas Division Colorado, Kansas Atmos Energy Kentucky/Mid-States Division Kentucky, Tennessee, Virginia…
• NI (NISOURCE INC.)
• FY2025 10-K: …pipeline safety, employee safety, the environment and our energy infrastructure. In particular, we are subject to significant federal, state and local regulations applicable to utility companies, including regulations by the various utility commissions in the states where we serve customers. These regulations…
• FY2025 10-K: …of Public Convenience and Necessity CRISC Certified in Risk and Information Systems Control C&HC Committee Compensation and Human Capital Committee DSIC Distribution System Improvement Charge DSM Demand Side Management Dunn's Bridge II Dunn's Bridge II Solar Generation EPA United States Environmental Protection…
• SWX (Southwest Gas Holdings, Inc.)
• FY2025 10-K: …customer demand associated with population growth and economic development activity, and the safe and reliable operation of its system through adherence to integrity management programs. Public utility rates, practices, facilities, and service territories of Southwest Gas are subject to regulatory oversight. The…
• FY2025 10-K: …forecasts show that an ample and diverse natural gas supply continues to be available to Southwest Gas' customers at a competitive price when compared to competing energy forms. Southwest Gas arranges for transportation of natural gas to its Arizona, Nevada, and California service territories through the pipeline…
• SR (Spire Inc.)
• FY2025 10-K: …the risk that larger commercial or industrial customers may bypass gas distribution services by directly connecting with interstate pipelines or, in the case of Spire Alabama and Spire Gulf, also from municipally or publicly owned gas distributors located adjacent to its service territory. The Utilities cannot…
• FY2025 10-K: …result in increased compliance costs or additional operating restrictions, adversely affect the demand for natural gas and/or midstream services, or impact the prices charged to customers, potentially reducing customer growth opportunities and/or increasing the cost of doing business. In addition, legislative and…
• NJR (NEW JERSEY RESOURCES CORPORATION)
• FY2025 10-K: …of NJNG. NJNG's Utility Gross Margin is defined as operating revenues less natural gas purchases, sales tax and regulatory rider expenses. This measure differs from gross margin as presented on a GAAP basis, as it excludes certain operations and maintenance expense and depreciation and amortization. Utility Gross…
• FY2025 10-K: …2024-10-01 2025-09-30 0000356309 us-gaap:OperatingSegmentsMember njr:ServiceContractsMember njr:NaturalGasDistributionNJNGSegmentMember 2024-10-01 2025-09-30 0000356309 us-gaap:OperatingSegmentsMember njr:ServiceContractsMember njr:CleanEnergyVenturesCEVSegmentMember 2024-10-01 2025-09-30 0000356309…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.