We recently updated a research report on Dominion Energy D. The company is benefiting from steady capital investments, contribution from organic and inorganic assets, revenue decoupling, along with additions to the existing customer base.
Despite the above positives, this stock’s earnings might be adversely impacted by share dilution and delay in completion of the Atlantic Coast Pipeline.
Tailwinds
Dominion’s portfolio realignment strategy, focusing on regulated assets, is evident from investments in regulated infrastructure and other fields whose outputs are sold under long-term purchase agreements. The company plans to invest $26 billion in the 2019-2023 time period to strengthen its existing infrastructure.
Dominion has started operation of the 1,588-MW Greensville County project, which will assist the company to lower emissions and be accretive to earnings. Its Cove Point liquefaction project, which had started commercial operations in April 2018, is complete. This has contributed to the company’s strong performance. Dominion completed the merger with SCANA Corporation on Jan 1, 2019, which added several high-quality businesses. The company has also decided to acquire select marine LNG assets and a 5% equity stake in the Atlantic Coast Pipeline from Southern Company SO. These high-quality assets will boost its performance.
Dominion continues to replace aging equipment to improve system reliability and serve the customer base more efficiently. The company is also working on a project of strategic undergrounding of 4,000 miles of distribution lines. Notably, it has already completed undergrounding 1,300 miles of distribution lines. These initiatives will increase resilience of its operations and enable it to serve the expanding customer base more efficiently.
Headwinds
Dominion’s 2020 operating earnings are expected to be impacted by share dilution. The company had issued 22 million shares for the acquisition of Dominion Energy Midstream Partners’ common units, which resulted in dilution of Dominion’s shares and will adversely impact earnings.
Dominion is jointly constructing the Atlantic Coast Pipeline with Duke Energy DUK. The companies now expect to complete this project by 2021-end (from mid-2020) and the cost estimate of the project currently stands at $8 billion. The completion of the project is delayed due to numerous environmental lawsuits. The delay in completion of this project will impact its profitability.
Zacks Rank & Key Pick
Dominion Energy currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is NextEra Energy NEE, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NextEra Energy delivered average positive earnings surprise of 2.4% in the last four quarters. The Zacks Consensus Estimate for 2020 earnings has moved up 0.2% in the past 60 days.
Price Performance
In the past 12-month period, the stock has gained 5% against the industry’s decline of 8.2%.
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