Dominion Energy (D) — a Top Pick for conservative investors — raised the mid-point of projected 2022 earnings, after reporting Q3 at the top end of its guidance range, notes Roger Conrad, utility sector expert and editor of Conrad's Utility Investor.

However, the announcement of a “top to bottom” strategic review of the business and withdrawal of long-term earnings guidance understandably spooked investors.

Memories of the abrupt 2020 sale of its midstream energy business and one-third reduction in the dividend are still fresh. And the result was a mass shift of Wall Street recommendations from buy to hold, with the share price plunging by more than -20 percent year to date, including dividends paid.

In this case, however, the most likely outcome is asset sales that actually unlock shareholder value. The three most likely candidates are Dominion’s remaining 50 percent stake in the Cove Point LNG export terminal in Maryland, the unregulated Millstone nuclear plant in Connecticut and the renewable natural gas development assets.

All have gained considerable M&A value because of rising natural gas priced. So selling proceeds should enable considerable reduction of debt. But together they account for less than 10 percent of Dominion’s earnings, meaning dividends will remain comfortably funded, even before interest cost savings from debt reduction and rate base growth from elevated utility CAPEX.

Dominion will also need to win Virginia regulators’ approval for a settlement agreement regarding costs of its 2.6 gigawatt offshore wind project. The key signatory of that deal is Attorney General Jason Miyares, odds on favorite to be the Republican nominee for governor in 2025.

Rising interest rates and supply chain pressures are increasing offshore wind costs. The Attorney General has been a skeptic of the project, so this agreement should greatly reduce political risks. And Dominion expects to have locked in more than 90 percent of project costs by early next year.

I don’t expect the stock make much headway until the company resets its long-term earnings growth guidance, not likely before Q4 earnings in early February. But the discounted valuation and yield of just under 5 percent are pricing in very low expectations that won’t be hard to beat. Buy at $65 or less.

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