Investors hate uncertainty. So, it’s understandable that Dominion Energy (D) shares sold off in early November when the company replaced its CFO and announced a “top to bottom” strategic review. But after a rough 2022, Dominion shares are priced for low expectations with multiple upside drivers, remarks Roger Conrad, editor of Conrad’s Utility Investor.

CEO Bob Blue stated the company would pursue “value-maximizing” actions, including “alternatives to our current business mix and capital allocation.” Dominion shares, however, now arguably price in the opposite: A cut in 6 percent annual earnings and dividend growth guidance to low single digits or worse.

Without meaningful debt reduction, Dominion will absorb higher interest expense from variable rate debt, as well as refinancing roughly $3.16 billion in maturing debt. There’s also been some pushback in Virginia regarding $72 billion of planned utility CAPEX through 2035. And the company’s last strategic move is hardly encouraging: A dividend cut of nearly one-third following the 2020 sale of most midstream energy operations.

But Dominion’s options are far more favorable this time around. The 2.6-gigawatt capacity Coastal Virginia Offshore Wind facility now has its Environmental Impact Statement. And management affirmed scheduling and the $9.8 billion projected costs are on track, per the settlement with the state’s attorney general. Also, solar panel deployment costs are likely to drop this year, thanks to declining materials prices.

Paying off the $8.124 billion in debt maturing through 2024 would also extinguish 80 percent of variable rate debt. That could be largely achieved with proceeds from selling Dominion’s remaining 50 percent in the Cove Point LNG export facility on the Maryland coast.

Brookfield Asset Management (BAM) paid $2.1 billion for a 25 percent share of the facility in 2019, and it’s arguably gained considerable value since. The Millstone nuclear plant in Connecticut and growing renewable natural gas business could also fetch a premium price.

Together, these assets contribute less than 10 percent of Dominion’s earnings. So, the dividend would still enjoy a considerable cushion, even before interest expense savings. In fact, management could raise the target payout ratio from its current 65 percent.

Recommended action: Buy up to $65.

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