Infrastructure investment and clean assets to help Dominion (D)

Dominion Energy D enjoys the benefits of a planned investment made to strengthen its electricity and gas infrastructure and add more renewable energy sources to its portfolio, enabling it to provide consistently high quality services to customers.

Contributions from organic and inorganic assets are likely to continue to add to Dominion’s earnings. Dominion Energy currently has a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Headwind

Dominion Energy’s portfolio realignment strategy focused on regulated assets is evident in its investments in regulated infrastructure and other areas whose products are sold under long-term purchase agreements (PPAs). Dominion divested itself of some of its commercial generation facilities and its electricity retail business to focus on core operations. Dominion Energy plans to invest $37 billion over 2022-2026 to strengthen its existing infrastructure, much 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 power in the state of Virginia. Its long-term goal 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 renewable energy capacity by more than 15% per year on average, over the next 15 years. Dominion aims to achieve zero carbon and methane emissions from its electricity and natural gas generation infrastructure by 2050 from 2005 levels.

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

Headwind

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 end the project. Legal challenges surrounding the project created uncertainty and increased the cost of the project. This is a major setback for the company and will hurt its goal of expanding 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 amount of natural gas or gas to gas to Dominion, it would correspondingly reduce the volume of natural gas and gas to gas 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 increase in interest rates from near-zero levels and the possibility of further interest rate increases will increase the company’s funding costs and impact margins.

Price Performance

Over the past month, shares of Dominion Energy are up 5.2% against the industry’s 4.5% decline.

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Other stocks to consider

A few better-ranked stocks in the same industry worth looking at are Exelon Corporation EXCELLENT, WEC Energy Group (WEC) and Otter Tail Corporation OTTR, each of which currently has a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for 2022 earnings for Exelon, WEC Energy, and Otter Tail have risen 0.4%, 0.5%, and 37.7%, respectively, over the past 60 days.

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

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