On Nov 25, we issued an updated research report on Dominion Resources D. Dominion’s expansion of its electric transmission, natural gas facilities and midstream assets are big positives. However, the company’s dependence on third parties for natural gas and risks associated with the operation of nuclear facilities are some of the headwinds.
Dominion’s earnings per share and total revenue outpaced the respective Zacks Consensus Estimate and improved from the year-ago figure. The bottom-line improvement was driven by an increase in electric sales due to warmer weather, lower capacity expenses, revenues from regulated growth projects and a lower tax rate.
Dominion’s portfolio realignment strategy of focusing on regulated assets is quite evident from its investments in regulated infrastructure. Secured earnings from these assets will drive the company’s bottom-line growth. Meanwhile, management has decided to invest nearly $18–$20 billion during the 2016–2020 time period in various growth projects.
In addition, Dominion’s decision to drop down Questar Pipeline to Dominion Midstream Partners LP DM will be beneficial for the former. Dominion will receive $1.725 billion under the deal, which is expected to close on Dec 1, 2016, and will use the net proceeds to lower its existing debt.
On the flip side, Dominion 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 natural gas liquids to Dominion, it would lead to a decline in volumes available for the company’s pipelines and other assets. This will certainly affect revenues in case Dominion fails to replace the lost volumes.
In addition, risks associated with the operation of nuclear facilities and unplanned outages at power stations in which Dominion has an ownership interest might derail management’s planned production goal and adversely impact its earnings.
Zacks Rank & Key Picks
Dominion currently has a Zacks Rank #3 (Hold). Couple better-ranked stocks in the same space are NextEra Energy NEE and DTE Energy Company DTE. Both stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
NextEra Energy’s earnings surpassed the Zacks Consensus Estimate by 5.5% in the third quarter of 2016. Its estimates for the current year increased 0.6% in the last 60 days.
DTE Energy’s earnings beat the Zacks Consensus Estimate by 27.3% in the third quarter of 2016. Its estimates for the current year moved up 3.9% in the last 60 days.
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NEXTERA ENERGY (NEE): Free Stock Analysis Report
DTE ENERGY CO (DTE): Free Stock Analysis Report
DOMINION RES VA (D): Free Stock Analysis Report
DOMINION MIDSTR (DM): Free Stock Analysis Report
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DM Research -- Mutual Funds Top 10 Holdings include "DM"
NEE Research -- Mutual Funds Top 10 Holdings include "NEE"
DTE Research -- Mutual Funds Top 10 Holdings include "DTE"