Dominion Resources: Analyzing Long-Term Growth Drivers
Dominion Resources’ earnings
According to analysts’ estimates, Dominion Resources (D) is expected to earn $0.95 per share in 1Q17—compared to EPS (earnings per share) of $0.95 in 1Q16.
Dominion Resources gave a 2017 earning guidance range of $3.40–$3.90 per share. Its 2016 earnings stood at $3.80 per share. Based on the midpoint of the guidance range, the company’s EPS in 2017 could be ~4% lower.
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Long-term earnings drivers
Dominion Resources benefits from a healthy regulatory environment in Virginia, which is a fully regulated state for utility operations. The healthy environment is one of the main reasons Dominion Resources generates strong returns on equity. The company’s adjusted return on equity was near 16% for 2016. In comparison, US utilities’ average return on equity is near 10%.
Dominion Resources’ Questar acquisition is expected to accelerate its earnings growth. Extended gas distribution operations from Questar could lower Dominion Resources’ dependence on regulated electric operations.
Dominion Resources’ active investments in solar, pipeline, and gas storage systems could provide it with higher earnings growth than traditional electric and gas distribution operations. Higher earnings would bode well for the company’s long-term growth prospects.
However, it should be noted that poor outlook for 2017 might not be that negative for Dominion Resources and its investors. The company noted that its expected earnings in 2018 to have “at least” 10% growth year-over-year. From 2018 to 2020, Dominion Resources’ earnings are expected to rise 6%–8% compounded annually, which is higher than the industry (XLU) average.