EUR 850.00 For Business Accounts Only

Morningstar | Projected Weak 2019 First Half and ACP Delay Create Buying Opportunity for Dominion Energy

We are reaffirming our $84 per share fair value estimate for wide-moat Dominion Energy after the company reported 2019 first-quarter operating EPS, reaffirmed full-year earnings guidance, and provided an update on the Atlantic Coast Pipeline that was for the most part unchanged.

We believe the ACP will be completed, although at a higher cost and with significant delays. The setbacks continue to pressure the shares and, in our opinion, create a buying opportunity for investors.

Dominion reported operating EPS of $1.10 in the first quarter versus $1.14 in the same period last year. Mild weather was a $0.06 per share drag on first-quarter results. Dominion reaffirmed its 2019 EPS guidance of $4.05-$4.40, and our $4.22 estimate is unchanged.

Dominion initiated a second-quarter EPS guidance range with a midpoint of $0.75, which suggests six-month operating EPS of $1.85 versus $2.00 at June 30, 2018. We are not concerned with the projected weaker performance through the first six months and believe 2019 earnings will be back-end loaded for the following reasons:

First, the Millstone refueling outage scheduled for the second quarter will likely result in the 2 GW merchant unit operating near 100% utilization in the second half of 2019. In 2018, Unit 2 had an extended outage in the fourth quarter.

Second, we expect positive variances from Cove Point for the remainder of 2019. Cove Point was ramping up to full operation in 2018. Dominion reported in March that the facility was operating at 105% of design capacity.

Third, management hinted of more farmouts of Marcellus and Utica shale properties during the earnings call. Farmouts helped first-quarter 2018 results and were not material in the recently ended quarter.

Fourth, we expect benefits from the voluntary retirement program announced at the Analyst Day. Management indicated it would provide detail in the next earnings call and savings would begin this year.

For more detail, see our report, “Market Still Not Appreciating Dominion Energy’s Strategy Pivot.”