Dominion Energy Earnings: Weather and Unplanned Millstone Outage Weaken Results

We are maintaining our $59 per share fair value estimate for Dominion Energy D after the company reported second-quarter operating earnings of $0.53 per share, down from $0.77 in the same year-ago period. Our narrow moat and Medium Uncertainty Rating are unchanged.

Two key items had a negative impact on earnings. Mild weather affected earnings $0.08 and an unplanned outage at the company’s Millstone nuclear facility hurt results. Going forward, earnings will be negatively affected by new rates implemented in Virginia, which will result in a $350 million reduction in annual revenue effective July 1. Along with other headwinds, including higher interest expense on the company’s floating rate debt, we forecast Dominion will have one of the lowest total-return profiles in the utility industry over our five-year forecast period.

Aiding earnings in the quarter was higher demand growth. Weather-normalized electricity load increased over 5% in the quarter in Virginia. The company expects 4.8% load growth in the region next year, as strong data center demand growth continues in Virginia. New rate-regulated investments also supported earnings.

The company’s strategic review continues. Management expects to announce additional moves to strengthen the company’s balance sheet at an investor day later this quarter. In July, Dominion announced it plans to sell its 50% interest in the Cove Point LNG facility to co-owner Berkshire Hathaway Energy for $3.5 billion, which we think is an attractive price. We think management will look to either sell a minority interest in the company’s offshore wind project or natural gas distribution utilities. We expect the market for these assets to be challenging.

While Dominion trades at a 14% discount to our fair value estimate and a 25% discount to its utility peer group, we see few near-term catalysts to erase the valuation gap and see more-attractive opportunities elsewhere in the sector.