Dominion Energy: Berkshire Hathaway To Buy Remaining Cove Point Interest

Dominion Energy Stock at a Glance

• Fair Value Estimate: $59
• Morningstar Rating: 4 stars
• Morningstar Uncertainty Rating: Medium
• Morningstar Economic Moat Rating: Narrow

We are maintaining our $59 fair value estimate for Dominion Energy D after the company announced it has agreed to sell its 50% interest in the Cove Point liquefied natural gas facility to Berkshire Hathaway Energy, which currently runs and owns the other half of the facility. Our narrow moat and Uncertainty Rating of Medium are unchanged.

Berkshire Hathaway Energy will pay $3.5 billion, representing nearly 11 times the projected 2025 EBITDA for the highly contracted facility. This is an attractive price, particularly given the challenging macro environment. Dominion will use the proceeds to pay down floating-rate debt, which has been a focus for investors. Upon completion of the sale, Dominion expects to improve funds from operations/debt metrics by roughly 0.7%. The difference between our valuation and that received for Cove Point is not material enough to alter our fair value estimate. The transaction is expected to close by year-end.

Dominion said its strategic review is ongoing. We expect additional capital rotation will be necessary to shore up the balance sheet and fund the regulated capital program. We think the company will look to sell a minority interest in either the offshore wind project or one of the natural gas distribution utilities. We expect the market for these assets to remain challenging. Management expects to finalize the strategic review later this year, with a broad range of outcomes supported by our Medium Uncertainty Rating. Since Dominion initiated the strategic review in November, it has significantly underperformed its peer group.

While Dominion trades at a 13% discount to our fair value estimate and a 24% discount to its peers in utilities, we see few near-term catalysts to bridge the valuation gap. We see more attractive opportunities for utility investors—namely Entergy ETR, NiSource NI, Duke Energy DUK, and American Electric Power AEP.