Dominion's Strong 2025 Earnings Mask Persistent CVOW and Regulatory Risks

What happened

Dominion Energy reported unaudited 2025 financial results showing a significant year-over-year increase in net income and earnings per share. For the fourth quarter, net income rose to $567 million ($0.65 per share) from $134 million ($0.14 per share) in 2024, with full-year net income reaching $3.0 billion ($3.45 per share) compared to $2.0 billion. However, this earnings growth occurs against a backdrop of heightened risks, including a federal freeze on the Coastal Virginia Offshore Wind (CVOW) project and tightening regulatory scrutiny in Virginia, as detailed in the DeepValue report. The report warns that underlying issues such as potential cost disallowances, high leverage, and equity-funded capex overruns could undermine future profitability despite the positive headline numbers. Therefore, while the financial results appear robust, they do not alleviate the core investment concerns centered on policy uncertainty and regulatory headwinds.

Implication

The earnings report may provide temporary relief, but it does not address the binary risks associated with the CVOW project's federal approvals and potential cost overruns, which could lead to material disallowances. Regulatory pressures in Virginia, including recent ROE cuts and affordability concerns, could limit future rate recovery and impair the $50.1 billion capex plan, threatening earnings growth. High valuation multiples (P/E ~21x) and leverage (net debt/EBITDA ~6.2x) offer little margin of safety if these risks materialize, as highlighted in the DeepValue report. The stock's current price near $57-58 aligns with the base case scenario, but downside scenarios to $48 remain plausible if CVOW faces extended delays or further regulatory pushback. Consequently, investors are advised to maintain a cautious stance, avoiding new exposure until clearer resolutions emerge on CVOW and regulatory fronts, rather than chasing short-term earnings momentum.

Thesis delta

The strong 2025 earnings do not fundamentally alter the investment thesis; the core narrative remains dominated by CVOW policy risk and regulatory tightening. While earnings growth is positive, it is insufficient to offset the heightened uncertainty and potential for material disallowances, as the DeepValue report emphasizes. Therefore, the recommendation to reduce or avoid exposure persists, with any investment decision contingent on resolving the key risk factors.