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Investment on Infrastructure & Clean Assets Aid Dominion (D)

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Dominion Energy D enjoys the benefit of planned investment, made to strengthen its electric and natural gas infrastructure and add more renewable energy source to its portfolio which allows it to ensure consistent high-quality services for customers.

Contribution from organic as well as inorganic assets is likely to continue to boost Dominion’s earnings.  Dominion Energy currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tailwinds

Dominion Energy’s portfolio realignment strategy, focusing on regulated assets, is evident from its investments in regulated infrastructure and other fields the outputs of which are sold under long-term purchase agreements (PPAs). Dominion divested some of its merchant generation facilities and electric retail energy marketing business to focus on core operations. Dominion Energy plans to invest $37 billion during 2022-2026 to strengthen its existing infrastructure, out of which a major portion will be invested in zero-carbon generation and energy storage.

Dominion is in the process of adding 4,000 MW of solar or wind generation in the state of Virginia. Its long-term objective is to add 24 GW of battery storage, solar, hydro and wind (offshore as well as onshore) projects by 2036. It also aims to increase the renewable energy capacity by more than 15% per year, on average, over the next 15 years. Dominion aims to attain net-zero carbon and methane emissions from its electric generation and natural gas infrastructure by 2050 from the 2005 level.

In May 2021, Dominion Energy acquired 100% ownership interest in Birdseye from BRE Holdings, LLC. Birdseye is primarily engaged in the development of solar energy projects in the southeastern states, in the United States, where 2.5 GW of solar generation projects are under development. Organic projects and acquired assets will further expand the company’s clean energy portfolio. Dominion Energy has plans to invest a total of $42 billion in offshore wind and solar projects during 2022-2035 to further expand renewable operations.

Headwinds

After investing billions of dollars and working for almost six years to complete the Atlantic Coast Pipeline project, Dominion and its partner Duke Energy, decided to discontinue the project. Legal challenges surrounding the project have created uncertainty and increased the project’s cost.  This is a major setback for the company and will hurt its goal of expanding the natural gas infrastructure.

Dominion Energy and its gas unit depend on third-party producers for the supply of natural gas. If a producer refuses to deliver a specific quantity of natural gas or NGL to Dominion, it would consequently reduce the volume of natural gas and NGL available for the company’s pipelines and other assets. This will certainly affect revenues, in case Dominion fails to replace the lost volumes. The increase in interest rates from near-zero levels and the possibility of more interest rate hikes will result in an increase in financing costs of the company and impact margins.

Price Performance

In the past month, shares of Dominion Energy have risen 5.2% against its industry’s 4.5% decline.

 

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Other Stocks to Consider

A few better-ranked stocks in the same industry worth considering are Exelon Corporation EXC, WEC Energy Group (WEC) and Otter Tail Corporation OTTR, each currently having a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for 2022 earnings of Exelon, WEC Energy and Otter Tail has moved up by 0.4%, 0.5% and 37.7%, respectively, in the last 60 days.

Exelon, WEC Energy and Otter Tail reported average surprise of 7.7%, 8.6% and 36.9%, respectively, in the last four reported quarters.


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