D - Dominion Energy: Offshore Wind Gamble May Pay Off Better Than Expected

2024-05-08 17:34:08 ET

Summary

• Dominion Energy has stabilized after a tumultuous period and is continuing work on its offshore wind project, which is expected to be more cost-efficient than coal and nuclear.
• The company's valuation is stable, but it has notable debt leverage, which will ideally be reduced through asset sales efforts, allowing it to avoid large rate hikes.
• Dominion is trading at a slight discount compared to its peers and has the potential for a modest upside.
• I remain neutral on Dominion because, even if it is discounted to its peers, its peers seem overvalued compared to Treasury rates.
• Dominion's most significant risk is its offshore wind project, but if its current trend of being on budget and efficient is correct, then it may gain an unexpected win.

In early 2023, I became bearish on the Virginian utility giant Dominion Energy ( D ), citing its high-cost, low-return investments, soured relationship with political allies, and significant debt leverage. The stock declined by around 34% from that time to its trough and around 22% when I upgraded it to neutral last August . Then, I believed its valuation was low enough that it was unlikely to continue to decline based on fundamentals. It has risen 5% since then, with a 9.6% total return....

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