Re: Roger Conrad of Conrad's Utility Forecaster ... Re: D
Dominion Energy actually raised its 2022 guidance following solid Q3 numbers. Rather, investors were understandably spooked by the announcement of a "top to bottom" strategic review of the business, as well as the withdrawal of long-term earnings growth guidance.
Here’s my take. The most likely outcome of the review is asset sales, which will provide low cost funding for the company’s renewable energy build out.
Dominion cut its dividend two years ago following the sale of its midstream energy assets. But even leaving aside management’s pledge that it’s "committed" to the utility’s credit rating and dividend, I believe a payout reduction is highly unlikely this time around.
For one thing, any of Dominion’s most likely asset sale candidates would arguably unlock considerable value, whether it’s the LNG facility, the Millstone nuclear plant, renewable natural gas operations or all three. And the trio together contributed less than 10 percent of Dominion’s year-to-date earnings, leaving plenty of cushion for the payout.
The timing of the review announcement also basically coincides with the filing of the settlement for costs at Dominion’s 2.6 gigawatt offshore wind project. The key signatory of that deal is Virginia Attorney General Jason Miyares, odds on favorite to be the Republican nominee for governor in 2025 if not sooner. That means this agreement greatly reduces political risks, provided the utility can execute on remaining permitting, finance and construction.
That’s certainly not a given. But by early next year, Dominion will have locked in more than 90 percent of project costs, with asset sales and rate riders in Virginia providing secure financing.
Bottom line: It’s possible Dominion will reduce growth guidance but market reaction has more than priced that in. I’m sticking with Dominion in the portfolio at a lower recommended entry point of 65, while we wait on management to announce more details. |
