$65.21
$87.62
bear $65.21
base $75.32
bull $87.62
margin of safety $57.00
market price* $76.63
Business condition attached to the margin of safety
The NorthWestern Energy merger is resolved: either it is terminated, so Black Hills stands alone as valued here, or it has closed and the combined company's first full-year filings show business cash flow before interest of at least about $7.27 per share on the enlarged share count.
Black Hills Corporation is a regulated electric and natural gas utility. Its electric utilities operate in South Dakota, Wyoming and Colorado; its gas utilities serve Arkansas, Colorado, Iowa, Kansas, Nebraska and Wyoming. It earns a regulated return on the pipes, wires and power plants it owns, with rates set by each state's utility commission. 2025 was its 55th straight year of dividend increases. Why the estimate is much lower than our previous one: before, we valued the cash left for shareholders after interest and effectively assumed Black Hills could keep rolling over its roughly $4.5 billion of debt forever at today's low average cost, while giving it credit for growth without charging for the new debt and shares that pay for that growth. We now value the whole business first, before its lenders are paid, and then subtract what it owes. The difference matters here because much of the debt carries coupons of 2.5% to 4.6% and matures between 2027 and 2031. We no longer assume it can be replaced on those terms indefinitely. We also now charge the full cost of the capital program against the returns it earns. The drop from our previous estimate comes from these two changes, not from a weaker view of the business. How we measured earning power: we start from operating cash flow and take out working-capital swings, stock compensation and the capital spending needed to keep the existing system running. For a regulated utility we count spending up to the level of depreciation as upkeep and spending above that as growth. Adding back cash interest, the business has produced $6.71 to $7.82 per share a year before paying lenders in every year from 2018 through 2025. 2021 was the low, when Winter Storm Uri gas costs distorted results. We used the 2018-2025 median, about $7.27 per share, or roughly $554 million a year on today's share count. 2018 is the first year under today's tax rules. In 2025 this measure grew 3.6% per share, and after-interest owner earnings grew 1.6%. Our base case starts below the 2025 level rather than extending that growth. Growth: Black Hills plans about $4.7 billion of capital spending from 2026 through 2030, roughly $600 million a year above depreciation. This is funded with new debt and new shares, including its at-the-market stock program. So we charge that spending as a cash cost and credit only the return it earns. The filings show what that return looks like. Recent orders set allowed overall returns of 6.9% (Colorado Electric, 2025) and 7.2% (Iowa Gas). Measured against its own record, the capital Black Hills added from 2019 to 2024 has raised annual business cash flow by about 5.8% to 7.5% of the amount invested. At our 6% discount rate, new rate base is worth only a little more or less than it costs, so the capital plan moves the value very little. The roughly $870 million already spent in 2025 and early 2026 that is not yet fully reflected in rates is a real addition, because its cost is already in today's debt. Nebraska Gas's $23.9 million rate increase took effect in January 2026, and Arkansas Gas has asked for $29.4 million starting late 2026. We gave no separate credit for the Meta and Microsoft data centers in Wyoming. They buy power under a cost-based tariff designed to be self-supporting, which adds load but little margin. Bear case, $65.21 per share: earning power stays at the 2022 level of about $7.07 per share, and regulatory lag and cost inflation hold returns on new capital to 5.5%, recovered two years after the money is spent. The business is worth about $9.28 billion ($121.63 per share). It owes about $4.30 billion ($56.41 per share), leaving $65.21. Even here, cash flow covers the roughly $200 million annual interest bill about 2.7 times. Base case, $75.32 per share: earning power at the $7.27 median, with new capital earning 6.4%, in line with the company's own record, after an 18-month lag. The business is worth about $10.05 billion ($131.73 per share), less $4.30 billion owed, leaving $75.32. Bull case, $87.62 per share: earning power at the 2024-2025 average of $7.69 per share, and new capital earning the 7.0% that regulators have actually allowed, recovered within a year. The business is worth about $10.99 billion ($144.04 per share), less $4.30 billion owed, leaving $87.62. What it owes: $4.525 billion of borrowings at June 30, 2026, face value. That includes $400 million of 3.15% notes due January 2027 and $90 million of commercial paper. Because most of the fixed-rate debt costs less than 6% until it matures, those cheap coupons are worth about $301 million to shareholders, so we reduce the debt by that amount. The notes include 2.50% due 2030, 3.05% due 2029 and 3.88% due 2049. We add $80 million for the 49.9% outside ownership of the Black Hills Colorado IPP power plant, whose cash flow is counted in full above. We treat the $71.5 million of cash as operating cash. The main credit covenant caps debt at 65% of capital, and Black Hills was in compliance at year-end 2025. No maturity or covenant looks likely to force a bad outcome in any case. Each case keeps our estimated earning power flat in dollars forever, with no credit for inflation, and credits capital spending only through 2030. The pending merger: in August 2025 Black Hills agreed to an all-stock combination with NorthWestern Energy, under which NorthWestern holders receive 0.98 Black Hills shares for each of their shares. Shareholders of both companies approved it in April 2026. FERC and the South Dakota and Nebraska commissions have approved it. The Montana commission was still deciding in late September 2026. If it closes, each Black Hills share becomes a share of a larger combined utility that we have not valued. The figures above are for Black Hills on its own. What would make this wrong: regulators allowing materially lower returns on the capital program than the 6.9% to 7.2% recently granted; merger conditions that cost more than they are worth; gas-demand losses from electrification rules, which the company names as a risk; or refinancing costs well above 6%. The filings do not yet show any of these happening.