Dominion Energy Earnings: Management Provides Little Direction on Strategic Review

We are maintaining our $59 per share fair value estimate for Dominion Energy D after the company reported first-quarter operating earnings of $0.99 per share, down from $1.18 from same year-ago period. Our narrow moat and medium uncertainty rating remains unchanged.

Dominion trades at a 21% discount to the utilities sector median 18.3 P/E multiple. We think this discount is warranted given uncertainty related to the long-term outlook of the Virginia regulatory environment and lack of clarity for Dominion’s strategic review. We believe the strategic review will ultimately lead to a divestiture of natural gas utilities, infrastructure assets, or a minority interest in its offshore wind project in a challenging macro environment, leaving valuation uncertain.

A more challenging regulatory environment and the reduced importance of the company’s infrastructure business led us to previously change our moat rating to narrow from wide. While recently passed legislation provides near-term clarity in Virginia, it creates some long-term uncertainty with regulators who ultimately will decide ratemaking in Virginia beginning in the third biennial review. This supported our decision to lower our moat rating.

Earlier this week, to comply with legislation in Virginia, Dominion announced plans to lower customer bills and filed its long-term integrated resource plan. We also think this supports our earlier decision to reduce our forecasts for capital expenditures. Dominion indicated it would continue using its fossil fuel assets through at least 2030.

Similar to Dominion’s peers, the switch from a colder-than-normal winter in 2022 to a substantially warmer-than-normal winter this year resulted in a $0.10 per-share negative year-over-year impact. Near-term changes in electricity demand driven by weather volatility have no impact on our fair value estimate.