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Dominion (D) to Gain From $26B Investment, Dilution a Worry

Zacks Equity Research

Per an updated research report on Dominion Energy D, the company is poised for long-term growth, supported by planned $26-billion investment in the 2019-2023 time period to strengthen its existing infrastructure.

However, earnings per share of this Zacks Rank #3 (Hold) company will be adversely impacted by share dilution.

Factors Aiding the Company

Dominion plans to invest $26 billion in the 2019-2023 time period to strengthen its existing infrastructure. Secured earnings from more than 95% regulated assets will continue to drive Dominion’s bottom-line growth. Planned investment in different segments and positive returns from completed capital projects are expected to drive its earnings at a rate of 5% per year through 2020 and 5% plus thereafter.

Dominion, taking into consideration the expected rise in demand for natural gas, has started building natural gas distribution infrastructure. The company entered into a 50/50 partnership with Smithfield Foods to become a prominent renewable natural gas supplier in the United States.

In addition to organic growth and partnership, it has also taken the inorganic route to expand existing operations. Dominion completed the merger with SCANA Corporation on Jan 1, 2019, which added several high-quality businesses to its portfolio. From first-quarter 2019, the company started reporting a new operating segment, known as the Southeast Energy Group, which comprises all former SCANA operations. Contribution from this segment is boosting the company’s performance.

Factors to Note

Dominion’s 2019 operating earnings are expected to be impacted by share dilution. The company issued 22 million shares for the acquisition of Dominion Energy Midstream Partners’ common units, which resulted in dilution of shares and is likely to affect earnings.

Delay in completion of the Atlantic Coast Pipeline and increase in the cost estimate of the project to $7.3-$7.8B from $6.5B-$7B can significantly affect the company’s growth plans and lower the expected profit from this capital project.

Price Performance
In the past six months, shares of Dominion have gained 6.4% compared with its industry's 4.9% growth.

Stocks to Consider

Some better-ranked stocks in the same industry are Eversource Energy ES, Alliant Energy LNT and FirstEnergy FE, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth (three-five years) of Eversource Energy, Alliant Energy and FirstEnergy is pegged at 5.63%, 5.5% and 6%, respectively.

The 2019 Zacks Consensus Estimate for Eversource Energy and Alliant Energy has moved up 0.9% and 1.8%, respectively, in the past 60 days. FirstEnergy’s estimates have been unchanged over the said period.

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