Dominion's Upbeat Outlook Masks Persistent Risks and Full Valuation

What happened

Dominion Energy has sharpened its 2025 outlook with rising estimates and a massive investment plan to expand clean-energy capacity, as promoted in a recent article. However, the DeepValue master report maintains a HOLD rating, noting that Dominion's valuation appears full with a P/E of 22.9 and EV/EBITDA of 30.6, which are elevated for a utility. The company's growth is driven by data-center-driven load in PJM, a $6.7B transmission expansion including a 765-kV backbone, and the CVOW offshore wind project, but this is offset by near-term EPS headwinds like higher interest, depreciation, and dilution. Critical risks include pending FERC decisions on transmission ROE and incentives, as well as potential cost overruns in CVOW, which could compress returns. Investors should remain cautious, as the article's optimistic spin may understate these execution and regulatory uncertainties.

Implication

The promotional article may fuel over-optimism, but Dominion's full valuation and elevated leverage with net debt/EBITDA of 6.2x limit near-term upside potential. Key catalysts like FERC rulings on transmission incentives and CVOW cost developments could swing the stock, with adverse outcomes likely driving underperformance. Despite the clean-energy investment aligning with long-term trends, near-term EPS headwinds from higher interest, depreciation, and dilution may suppress earnings growth. Regulatory overhangs in core jurisdictions and offshore wind tariff risks add volatility, making the risk-reward profile balanced. Thus, investors should await resolution of these uncertainties before considering a more bullish position, reinforcing the HOLD recommendation.

Thesis delta

The new article does not alter the fundamental thesis, as it merely reiterates Dominion's growth narrative without addressing the DeepValue report's concerns on valuation and risks. Investors should recognize that the optimistic portrayal may overlook elevated execution and regulatory headwinds, maintaining the cautious HOLD stance until key watch items like FERC decisions and CVOW progress provide clearer signals.