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Dominion (D) Expansion Drives Bode Well, Regulations a Woe

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On Nov 25, we issued an updated research report on Dominion Resources (D - Free Report) . Dominion’s expansion of its electric transmission, natural gas facilities and midstream assets are big positives. However, the company’s dependence on third parties for natural gas and risks associated with the operation of nuclear facilities are some of the headwinds.

Dominion’s earnings per share and total revenue outpaced the respective Zacks Consensus Estimate and improved from the year-ago figure. The bottom-line improvement was driven by an increase in electric sales due to warmer weather, lower capacity expenses, revenues from regulated growth projects and a lower tax rate.

Dominion’s portfolio realignment strategy of focusing on regulated assets is quite evident from its investments in regulated infrastructure. Secured earnings from these assets will drive the company’s bottom-line growth. Meanwhile, management has decided to invest nearly $18–$20 billion during the 2016–2020 time period in various growth projects.

In addition, Dominion’s decision to drop down Questar Pipeline to Dominion Midstream Partners LP (DM - Free Report) will be beneficial for the former. Dominion will receive $1.725 billion under the deal, which is expected to close on Dec 1, 2016, and will use the net proceeds to lower its existing debt.

On the flip side, Dominion and its gas unit depend on third-party producers for the supply of natural gas. If a producer refuses to deliver a specific quantity of natural gas or natural gas liquids to Dominion, it would lead to a decline in volumes available for the company’s pipelines and other assets. This will certainly affect revenues in case Dominion fails to replace the lost volumes.

In addition, risks associated with the operation of nuclear facilities and unplanned outages at power stations in which Dominion has an ownership interest might derail management’s planned production goal and adversely impact its earnings.

Zacks Rank & Key Picks

Dominion currently has a Zacks Rank #3 (Hold). Couple better-ranked stocks in the same space are NextEra Energy (NEE - Free Report) and DTE Energy Company (DTE - Free Report) . Both stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

NextEra Energy’s earnings surpassed the Zacks Consensus Estimate by 5.5% in the third quarter of 2016. Its estimates for the current year increased 0.6% in the last 60 days.

DTE Energy’s earnings beat the Zacks Consensus Estimate by 27.3% in the third quarter of 2016. Its estimates for the current year moved up 3.9% in the last 60 days.

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