Dominion Energy (D – Free Report) enjoys the benefit of planned investments made to strengthen its electricity and natural gas infrastructure and to add more renewable energy sources to its portfolio, which allows it to provide sustainable services with high quality for customers.
Contribution from both organic and inorganic assets is likely to continue to boost Dominion’s earnings. Dominion Energy currently has a Zacks Rank #3 (Hold). You can be seen Complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Dominion Energy’s portfolio realignment strategy, focusing on regulated assets, is evident from its investments in regulated infrastructure and other areas whose products are sold under long-term purchase agreements (PPAs). Dominion divested some of its dealer manufacturing facilities and retail electricity marketing business to focus on core operations. Dominion Energy plans to invest $37 billion over 2022-2026 to strengthen its existing infrastructure, a large portion of which 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 goal is to add 24 GW of battery storage, solar, hydro and wind projects (offshore as well as onshore) by 2036. It also aims to increase renewable energy capacity by more than 15% per year, on average. over the next 15 years. Dominion aims to achieve net carbon and methane emissions from its electricity generation and natural gas infrastructure by 2050 from 2005 levels.
In May 2021, Dominion Energy acquired 100% ownership in Birdseye from BRE Holdings, LLC. Birdseye is primarily engaged in the development of solar energy projects in the southeastern states of 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 over 2022-2035 to further expand its renewable operations.
The opposite winds
After investing billions of dollars and working for nearly six years to complete the Atlantic Coast Pipeline project, Dominion and its partner Duke Energy have decided to terminate the project. Legal challenges surrounding the project have created uncertainty and increased the cost of the project. This is a major setback for the company and will undermine its goal of expanding natural gas infrastructure.
Dominion Energy and its gas unit depend on third-party producers for natural gas supplies. If a producer refuses to deliver a certain amount of natural gas or NGLs to Dominion, it will consequently reduce the volume of natural gas and NGLs available for the company’s pipelines and other assets. This will certainly affect revenues, in case Dominion is unable to replace the lost volumes. The rise in interest rates from near-zero levels and the possibility of further interest rate increases will result in an increase in the company’s funding costs and impact on margins.
In the past month, shares of Dominion Energy are up 5.2% versus its industry’s 4.5% decline.
Image source: Zacks Investment Research
Other stocks to consider
A few top-ranked stocks in the same industry are worth considering Exelon Corporation (EXC – free report), WEC Energy Group (WEC) and Otter Tail Corporation (OTTRIA – Free Report), each currently has a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Exelon, WEC Energy and Otter Tail’s 2022 earnings has risen 0.4%, 0.5% and 37.7%, respectively, in the past 60 days.
Exelon, WEC Energy and Otter Tail reported average gains of 7.7%, 8.6% and 36.9%, respectively, in the last four reported quarters.