Morningstar | We Remain Confident That Wide-Moat Dominion Energy Will Complete ACP; Reaffirming $84 FVE
We are reaffirming our $84 per share fair value estimate and wide moat rating for Dominion Energy after the company reported 2018 fourth-quarter operating EPS and initiated 2019 earnings guidance. Both are in line with our estimates and consensus. We continue to believe the Atlantic Coast Pipeline 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.Senior management remains highly confident that the ACP will reach timely resolution on all outstanding permit issues. That being said, the potential routes to achieve resolution are complex, assuming the request for an en banc hearing from the 4th U.S. Circuit Court of Appeals is denied. Dominion management indicated they are pursuing legislative alternatives and potentially administrative solutions, although the latter has been delayed because of the government shutdown.
Dominion now expects the project to cost between $7 billion and $7.5 billion. This assumes construction recommences on the full route in the 2019 third quarter and goes into full service in early 2021. We expect a mid-2021 completion and first full year of commercial operation in 2022. The Supply Header is now expected to cost $650 million to $700 million versus the initial estimate of $500 million and the completion has been pushed back to late 2020 to coincide with the new ACP schedule.
Operating EPS for the  fourth quarter of 2018 were $4.05, equal to the consensus estimate and $0.02 higher than our estimate. Dominion initiated 2019 operating earnings guidance of $4.05 to $4.40 per share, placing our $4.19 estimate just below the midpoint of $4.22 per share. Dominion expects 2020 EPS to increase 5%, to roughly $4.43 and materially higher than our estimate of $4.27. We suspect some of the difference is due to accretion from the Scana acquisition, which management expects to contribute $0.10 per share.
For more detail, see our report, “Market Still Not Appreciating Dominion Energy’s Strategy Pivot.â€
Dominion Energy is a holding company. Through its subsidiaries , the company is engaged in producing and transporting energy. The company's operations are conducted through its subsidiaries: Virginia Electric and Power Company, which is a regulated public utility that generates, transmits and distributes electricity for sale in Virginia and North Carolina; and Dominion Energy Gas Holdings, LLC, which serves as the intermediate parent company for the company's Federal Energy Regulatory Commission-regulated interstate natural gas transmission pipeline and underground storage systems in the eastern and Rocky Mountain regions, as well as for the liquefied natural gas import/export and storage facility.
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