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Summary Company’s future performance will remain strong due to strong potentials of growth efforts and capital spending. D’s performance and execution of growth projects highlight ability to attain anticipated level of earnings growth in years ahead. Analysts have anticipated a strong next five-years growth rate of 6.25% for D. I have a bullish stance on Dominion Resource (NYSE: D ); the company is efficiently executing its infrastructural growth strategy that focuses on getting a regulated asset base through the extension of its renewable energy generation project. As a matter of fact, there are a series of ongoing strong infrastructural growth projects being undertaken by the company, which will positively impact its long-term earnings growth. Given the strong potential of its strategic growth investments, I believe the company’s cash flow base will remain strong in the years ahead, due to which D will continue to increase its dividends at a decent pace, which will positively affect the stock price. Growth Investments Are Keeping Me Bullish on D’s Long-Term U.S. utility companies have accelerated their growth investments in order to strengthen their infrastructure and better serve customers. Owing to these hefty growth investments, utility companies will experience growth on their top and bottom-line numbers. Like all other companies in the U.S. utility sector, D has also designed a growth strategy that is centered on the idea of establishing a large and improved energy generation infrastructure through hefty capital investments. In fact, the company has announced that its average annual spending till 2020 will be in a range of $1.2 billion. The following graph details D’s capital investments plan from 2014 to 2020. (click to enlarge) Source: Investors Presentation Currently, there are several ongoing construction projects of the company, which I believe will act as important drivers of its long-term growth; in the first half of 2015, D invested more than $500 million in electric transmission projects. The company is working hard to get an extensive network of regulated, renewable energy generation resources through its hefty investments, in order to comply with strict carbon dioxide regulations. In this regard, two of D’s promising gas supply-based renewable energy generation projects, the Atlantic Cost pipeline (ACP) and Cove point facility, are currently progressing in-line with the schedule. At Cove point, the overall project is 31% complete and around 90% of engineering is near to completion. And for ACP, recent reports reveal that ACP is running ahead of the management’s original plan, with operations expected in November ’18. Due to the effectiveness exhibited by ACPs’ management, I believe investor confidence will improve, which will portend well for the stock price. Moreover, there are several other promising gas generation projects at D, like the project to build 1358MW of natural gas combined cycle facility in Brunswick country, which is proceeding well by staying on-time and on-budget; so far, around 75% of work related to this project is complete and it is expected to begin service in mid-2016. Also, the company has filed for construction approval of 1,588MW gas-fired combined cycle facility in Greensville country, VA, which is expected to be in service in December 2018. The plant is expected to be one of the largest combined cycle gas plants in North America, which will be built under a rate rider, if approved. Apart from its gas-based energy generation projects, the company has been allocating sufficient funds to develop solar energy generation resources. D had invested $700 million to build multiple solar-energy generation projects in Virginia, which will in supply total 400MW of electricity. And under this plan, the first step was taken in January 2015, when the company filed a case for rate rider and CPN for a 20MW solar facility at its Remington power station. If approved, the 20MW facility will be in service by late 2016. In addition, D recently acquired a 265MW solar farm in Utah from SunEdison (NYSE: SUNE ) for $320 million , as part of a joint venture that the two companies had entered into last month. Given the fact that utility companies are growing their renewable asset bases to comply with environmental regulations, I believe all of the above-mentioned renewable energy generation projects of the company will allow it to generate strong sales and healthy earnings in the years ahead. Owing to the strong growth potentials attached to these projects, D’s management is confident of achieving its promising earnings growth target of 6% to 7% through 2020. Also, analysts have projected healthy next five-years earnings growth of 6.25% as shown below. (click to enlarge) Source: Nasdaq.com Investors Remain Rewarded At D Over the past few years, the company has maintained its policy of paying healthy dividends to shareholders, which are backed by its cash flows. D currently offers an attractive dividend yield of 3.77% . Owing to their strong infrastructural growth and development-related investments, all of which will ensure strong cash flows for D, the company’s management has affirmed that they will continue to increase dividends in future, as shown in the graph below. (click to enlarge) Source: Investors Presentation Also, given D’s strong growth prospects, analysts have projected consistent increases in the company’s book value and cash flows per share, as shown below. (click to enlarge) Source: 4-Traders.com Risks The company continues to face the risk of lagging behind the management’s expectations, due to possible construction delays or cost overruns at its ongoing projects. Moreover, unforeseen negative economic headwinds, utility regulations, rate case risk and unfavorable weather conditions are the key risks that might adversely affect D’s future stock price performance. Conclusion I believe D’s performance will remain strong in future due to the strong potentials of the company’s growth efforts and capital spending directed at strengthening its asset base. Also, the company’s performance and execution of growth projects highlight its ability to attain the management’s anticipated level of earnings growth in the years ahead. Moreover, the strong growth efforts will create a strong and stable earnings base for D. Also, the company’s growth efforts will portend well for its cash flows and will allow the company to consistently increase dividends in future years, which will positively affect the stock price. Also, analysts have anticipated a strong next five-years growth rate of 6.25% for D. Due to the aforementioned factors, I am bullish on D. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Scalper1 News
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