By Jacob Sonenshine

Utility provider Dominion Energy is about to benefit from several long-term initiatives in the states it serves. The stock is cheap after years of negative returns, providing a buying opportunity.

The electricity provider, which operates in the Carolinas and Virginia, is poised to benefit from two major investment projects. It's building more plants to power data centers -- essential for artificial intelligence -- and management says its Coastal Virginia Offshore Wind project, or CVOW, is now 66% finished. It will provide clean energy to hundreds of thousands of homes.

Yet the stock's performance shows no trace of this promise. It's down 23% in the past five years, underperforming the 41% gain for the Utilities Select Sector SPDR exchange-traded fund. The most recent challenge: The Trump administration has threatened to end as many offshore wind projects as it can.

The reality, which favors Dominion bulls, is that CVOW looks positioned to prevail. Trump hasn't articulated a reason to terminate construction, which makes ending the project difficult. A U.S. judge ruled in September that Orsted A/S, a Danish renewable energy company, could resume its offshore wind project in Rhode Island and Connecticut after the Trump administration's stop order. The judge said the administration didn't have sufficient rationale for the order.

In October, a federal judge ruled that Norwegian energy company Equinor could continue its Empire Wind project, just south of Long Island. Now the administration is even endorsing it.

Today, "you do have a much better fact pattern," says Jefferies analyst Paul Zimbardo. "We assume the [CVOW] project gets completed successfully."

Dominion is charging ahead with construction. Management expects completion by the end of 2026. Also to Dominion's benefit, offshore wind is usually energy independent and beneficial to national security. It doesn't require imports of batteries and fossil fuels. It also will upgrade the power grid for the Naval Air Station Oceana in Virginia Beach.

"We do think it will get built," says Evercore ISI analyst Nick Amicucci, who emphasizes the national security benefit.

If Dominion builds it, they will come. Revenue and earnings from customers will arrive. The "rate base," or the company's assets on which it is allowed to earn a regulated rate of return -- mostly comprised of plants -- will increase. States allow utilities to earn a stated return on the equity of their assets. As rate bases increase, so do earnings.

Right now, Dominion expects to invest an additional $1.5 billion into CVOW, with about $8.2 billion -- split between itself and 50% equity partner Stonepeak Infrastructure Partners -- already invested. That should add a mild boost to Dominion's total $65 billion rate base this year to $71 billion next year, according to FactSet, with the Virginia rate base driving the increase.

Given that Dominion earns just under 10% on the equity of these assets, earnings should rise 6.5% year over year to $3.15 billion in 2026. That lines up with management's long-term forecast of 6% annual earnings growth at the midpoint of the range.

The best part is that earnings estimates won't take a large hit in the unlikely event that the administration successfully scraps CVOW. Dominion's equity in the entire project should hit roughly $2.9 billion, Zimbardo says. Assuming the same return on that equity, its annual CVOW earnings are about $283 million. The amount of the initiative that's complete will turn into earnings, but even if the remaining 33% never materializes, Dominion will miss out on about $94 million of earnings, only about 3% of total profit.

With the shares already reflecting the risk to the project, "I would argue limited downside," Zimbardo says.

The data-center opportunity could spark additional profit growth. That's why analysts' forecast of 6% annual earnings-per-share growth through 2030, according to FactSet, should rise. Dominion has begun building plants for data centers, as Virginia has the most in the U.S., according to datacentermaps.com. Aggregate EPS for the Utilities SPDR ETF are expected to grow at just over 9% annually -- and Dominion's states are far more data-center-heavy than other states.

The boost to estimates could start after the fourth-quarter earnings call, which should be in early February. Chief Financial Officer Steven Ridge said on the third-quarter call that management plans to articulate a capital investment plan through 2030 on the February call. He expects "incremental opportunities," much of which the company would deploy closer to 2030. While he didn't call out the data-center opportunity explicitly, the statement implies management is eyeing it.

"Once they hit milestones on CVOW, then I think they start to get more confident in themselves to either put a plus sign at the end of their EPS CAGR [compound annual growth rate] or actually increase the CAGR," Amicucci says.

A higher growth forecast would do wonders for the stock, which currently trades at about 17 times expected EPS for the coming 12 months, below the Utilities SPDR ETF's just under 19 times. Our calculations of FactSet data and Amicucci's estimates show that higher earnings growth for utilities equates to an over 20 times price/earnings multiple, so there's loads of upside for Dominion's stock.

That could push the stock up to over $70 -- or higher -- by next year, from a recent $61. If the stock trades at 20 times analysts' expected 2027 EPS of $3.85, it would hit $77 by the end of 2026.

The risks: Trump's anti-clean-energy campaign, which we think won't have success, or CVOW cost overruns. The latter could create a setback for earnings and the stock, but not a long-term impediment to growth, as long as clean energy and data centers remain sources of high electricity demand.

Prepare for electric returns.

   -- Stay tuned for the next live Q&A! Watch the Barron's Investor Circle page 
      for the sign-up link 
 
   -- Share your questions and thoughts in the "Conversation" section below to 
      engage directly with the author and our community 
 
   -- Receive alerts about more content from this author by clicking "Follow" 
      next to the author byline at top 

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

November 26, 2025 09:00 ET (14:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.