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Dominion Resources’ Expected 4Q16 Earnings and Growth Drivers

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Dominion Resources’ earnings

According to analysts’ estimates, Dominion Resources (D) is expected to earn $1.01 per share in 4Q16 compared to its earnings per share (or EPS) of $0.70 in 4Q15.

Dominion Resources derives nearly 85%–90% of its earnings from regulated operations. Dominion’s management has provided EPS guidance of $3.60–$4 per share for 2016, implying earnings growth of 10% year-over-year—much higher than the industry average.

D EPS

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Earnings drivers

Dominion is one of the fastest growing US utilities (XLU). It expects long-term earnings growth of ~10% for the next few years—nearly double the industry average. Apart from Dominion, NextEra Energy (NEE) is one of the fastest-growing utilities in the industry. NextEra’s long-term earnings growth is also near 10%.

Dominion Resources benefits from a healthy regulatory environment in Virginia, which is a fully regulated state for utility operations. This healthy environment is one of the reasons Dominion generates strong returns. Dominion’s adjusted return on equity is near 16% for 2016. By comparison, US utilities’ average return on equity is near 10%.

Dominion’s long-term growth drivers

Dominion Resources’ Questar acquisition is expected to accelerate its earnings growth. Extended gas distribution operations from Questar are likely to lower Dominion’s dependence on regulated electric operations. 

Dominion Resources’ active investments in solar, pipeline, and gas storage systems are likely to provide it with higher earnings growth than traditional electric and gas distribution operations, boding well for the company’s long-term growth prospects.

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