D - Dominion Energy: A Compelling Buy At Current Levels (Technical Analysis)

2023-10-18 07:31:29 ET

Summary

• Dominion Energy is scheduled to release its Q3 2023 earnings on November 3, 2023.
• D stock price is indicating a robust turnaround at the long-term support.
• The emergence of a bullish hammer hints at a strong rally.

Dominion Energy, Inc. ( D ) is scheduled to announce its Q3 2023 earnings results on November 3, 2023. The company's guidance for Q3 2023 projects operating earnings per share to be between $0.72 and $0.87. This article explores Dominion Energy's financial results from Q2 2023, highlights the upcoming earnings announcement, and provides a technical analysis of its stock trajectory. The technical analysis indicates that Dominion Energy's stock price is near a solid long-term support threshold, hinting at possible signs of a market rebound. The appearance of bullish hammers on the daily chart signals the beginning of a robust rally.

Financial Performance

Dominion Energy's financial performance for Q2 2023 showed notable changes compared to the previous year. The reported earnings for the June 30, 2023 quarter were $599 million, equating to $0.69 per share. This is a remarkable improvement when juxtaposed against the net loss of $453 million, or $0.58 per share, during the same timeframe in 2022. The following chart illustrates Dominion Energy's quarterly revenue and net income. A notable decline can be seen, with the quarterly revenue at $3.794 billion compared to Q1 2023.

However, when considering operating earnings specifically for Q2 2023, Dominion Energy reported $468 million, translating to $0.53 per share. While this is a substantial amount, it's worth noting that the operating earnings for the same period in the prior year were higher, at $658 million or $0.77 per share. The discrepancy between the net income and operating earnings can be attributed to various factors, including the gains and losses of nuclear decommissioning trust funds, the mark-to-market influence of economic hedging practices, and other sundry adjustments.

Dominion Energy has guided its financial performance in the upcoming Q3 2023. The company expects its operating earnings per share to fall between $0.72 and $0.87. In total adjusted EBIT, a range of $1,299 to $1,439 is anticipated, a slight decrease compared to the $1,537 reported in Q3 2022. Additionally, the consolidated interest is forecasted to lie between $509 and $549, notably higher than the $401 recorded in Q3 2022. Consolidated income taxes are projected to be in the bracket of $132 to $182, which, while being a tad lower than the $192 in Q3 2022, still presents a sizeable amount. The operating earnings are predicted to be between $618 and $748, lower than the $944 from the same quarter in the previous year. Lastly, the average diluted shares are expected to range between $836 and $838, staying in the ballpark of the Q3 2023 figure of $833. While there are mixed signals in the provided figures, the forecast presents some headwinds for Dominion Energy, making it challenging to deem the outlook entirely bullish for the company.

Dominion Energy's Q3 2023 forecast, despite showing a mix of improved and challenging numbers, suggests potential growth areas, particularly with the anticipated operating earnings per share, which may serve as a beacon for bullish investors. With the upcoming announcement, any positive shift in the forecasted numbers might prime the stock for a significant rally. This potential is further underscored by current technical analysis, indicating that the stock price is already on a significant pivot, and any improvement in the reported figures could amplify this momentum.

Deciphering Long-Term Technical Perspective

Dominion Energy's long-term prospects appear bullish, as shown in the monthly chart below. The chart showcases that the pivotal long-term bottom for Dominion Energy was established in 2009, following the aftermath of the Great Recession. Since then, the stock has soared unprecedentedly, propelled by various influencing factors. The broad market rebound post-Great Recession was a boon to many stocks, notably those within the utilities sector. Dominion Energy enjoyed consistent revenue as a significant player in this sector due to its indispensable services. The firm also wisely ventured into infrastructure and clean energy projects during these times, positioning itself to cater to the surging demand for eco-friendly energy. Moreover, Dominion Energy's unwavering commitment to dividends and regular returns became a magnet for investors seeking dependable yields, further amplifying its stock value over the specified span.

However, after hitting a record high of $83.08 in 2022, there's been a downtrend in its stock price, which has now formed an ascending broadening wedge pattern. Moreover, the Fibonacci retracement from the 2009 lows to the all-time high presents $41 as the 61.8% Fibonacci retracement level, a potent long-term support. Currently, the stock is showcasing strength at this level, and there's an anticipation of an uptrend in momentum. Additionally, RSI is nearing oversold territory, suggesting a potential price reversal. Notably, the RSI was positioned at similar levels during the 2009 lows.

Diving deeper into the market's oversold status, the weekly chart below also displays the RSI in the oversold region, hinting at a price resurgence. The previous week's candlestick pattern was an inside bar, indicating potential price consolidation and gearing up for a significant price move. Concurrently, this inside bar also signals a potential shift in price. With the monthly chart indicating an oversold scenario, the appearance of the inside bar on the weekly chart suggests a probable upward trajectory for the market.

Key Action for Investors

Based on the above discussion, it's evident that Dominion Energy's price is trading at a robust support level, with the price action hinting at a potential upward swing. This perspective is further solidified by the daily chart, which displays pronounced bullish markers. Although a descending channel has been in play over the past year, the stock has now found strong support at this channel's lower boundary. The appearance of bullish hammer patterns along this trend line is a positive signal.

Investors may consider buying Dominion Energy stocks at the current levels, aiming for higher price rebounds. The first hurdle in this potential surge will be at $49. A monthly closure above this mark could signify continued bullish momentum. Should there be a further dip in price from current levels, investors may consider accumulating more long positions, provided the price remains above $31, aligning with the ascending broadening wedge's trend line. A monthly close below $31 would challenge the market's long-term bullish trajectory. Alternatively, a monthly close above $57 would likely confirm that the market has bottomed out, setting the stage for the stock rally toward all-time highs.

Market Risk

A dip in year-over-year operating profits might indicate potential operational issues or challenges the company might encounter. Furthermore, with Dominion Energy's expansion into infrastructure and green energy initiatives, the company is now somewhat reliant on the sustained growth and adoption of renewable energy. Any hiccups in this industry's regulatory, technological, or market landscape could affect Dominion Energy's forthcoming performance. Dominion Energy is part of the utility domain, facing potential risks from regulatory shifts, variable energy costs, and issues in infrastructure development.

From a technical viewpoint, the stock's price remains within the downward trend. Should the stock price fall below the $31 mark, it would breach the ascending broadening wedge formation, indicative of a strong bearish trend. Crossing this threshold would counteract the optimistic long-term prediction and could lead to significantly lower stock values.

Bottom Line

Dominion Energy demonstrated a marked transformation in its financial results for Q2 2023 compared to the same period in the previous year. Although the company's net income showcased a significant upswing, reaching $599 million from a net loss of $453 million in the previous year, its operating earnings witnessed a downturn, settling at $468 million against $658 million in Q2 2022. These variances can be credited to financial dynamics such as nuclear decommissioning trust fund adjustments, economic hedging impacts, and other miscellaneous adjustments.

From a technical perspective, the stock has touched the 61.8% Fibonacci retracement level, situated at $41, and displays signs of reversal with bullish hammers on the daily charts. Furthermore, the monthly, weekly, and daily charts indicate an oversold condition. The emergence of these distinct bullish candles suggests the potential for an upward price movement. As Dominion Energy is scheduled to announce its earnings in the coming days, any significant positive deviation from the forecasted numbers could set the stage for a vigorous rally. This anticipated strong rally is based on the company's financials and bolstered by current technical indicators. Given these conditions, investors may consider acquiring Dominion Energy at its current price point and increasing positions if it remains above $31. If the price drops below $31, the technical ascending broadening wedge will be disrupted, negating the bullish momentum.

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