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How Dominion Energy Stock Is Looking Lately

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Jan. 24 2019, Published 2:42 p.m. ET

Valuation

Dominion Energy (D) stock continues to look attractive compared to its peers. It’s trading at a forward PE multiple of 16.0x compared to its five-year historical average of 24x.

The peer average PE is close to 17x. Thus, Dominion Energy stock looks to be trading at discounted valuations to its historical average and its peers.

Dominion Energy’s earnings are expected to rise ~4% in 2019, in line with many of its peers. Its valuation doesn’t seem justified if we compare its earnings growth to the growth in the broader market. However, utilities generally grow very slowly compared to the broader market. Also, Dominion Energy’s superior dividend yield and above-average dividend growth likely make it attractive among its peers.

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Peers’ valuations

Among the top utilities, NextEra Energy (NEE) is trading at a forward PE of 21x. Southern Company (SO), the second-largest regulated utility in the country, is trading at a forward PE of 15.7x based on its estimated EPS for the next year. Duke Energy (DUK) stock is trading at a forward PE of 17.4x—lower than its five-year average PE.

Dominion Energy is currently trading at a dividend yield of 4.9%, higher than broader utilities’ (XLU) average of 3.3%. Dominion has managed to increase its dividend by 8% compounded annually over the last five years. Utilities grew their dividends by an average of 4% in the same period.

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