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Dominion Energy Analyst Says It's An 'ESG Contender,' Stays Sidelined Following Berkshire Deal

July 6, 2020 2:00 pm
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Dominion Energy Analyst Says It's An 'ESG Contender,' Stays Sidelined Following Berkshire Deal

Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK-A) (NYSE: BRK-B) is buying Dominion Energy’s (NYSE:D) gas transmission and storage segment assets for $9.7 billion.

BofA Sidelined On Dominion: Dominion Energy announced on Sunday a 33% cut to its dividend alongside a dilutive transaction to dispose of the vast majority of its midstream, with the ex-50% stake in Cove Point remaining. 

The big news is that Dominion Energy is scrapping its Atlantic Coast Pipeline project. Its asset sale to Berkshire signals a move to becoming a pure play alternative energy company focusing on natural gas, solar and wind transmission.

On Monday, Bank of America analyst Julien Dumoulin-Smith maintained a Neutral rating on Dominion Energy shares.

"We see risks associated with Atlantic Coast Pipeline as fully digested by the market, with fundamentals at the core utilities remaining solid, and we believe there is less overall downside risk to shares," the analyst said. 

"Offshore wind strategy on upcoming VA elections will be key to provide further confidence in LT growth." 

Why It’s Important: The analyst questioned whether the company will become even bigger in its environmental, social, and governance play.

Dominion Energy says it integrates ESG factors into its core businesses and operations.

In a previous note published in May, Dumoulin-Smith highlighted Dominion Energy as an “ESG contender,” adding that the company had the “single best opportunity” for renewable rate base with eligible investment opportunities among peers, with clear potential to further pivot to an ESG story.

ESG-Focused Investments Well-Positioned In 2020: “ESG looks certain to become ever more of a focus for companies and investors alike over coming years, both because of increased green investments by government and societal pressure,” Kingswood CIO Rupert Thompson said in an emailed statement.

Those companies with high ESG ratings tend to be high quality — and quite resilient in periods of economic stress like today, the CIO said. 

"ESG-focused companies have also avoided sectors such as energy which have suffered from the collapse in the oil price. As a result, our ESG portfolios have also fared rather well so far this year."

Markets could be choppy in the coming months, and the risk of a correction exists, Thompson said. 

"In this environment, a continued focus on themes such as those above should stand investors in good stead, both over this coming period and longer term."

What’s Next: The acquisition of Dominion Energy’s assets is expected to close this year, subject to regulatory approval.

BofA Securities calculates a negative $3-per-share impact from the loss of the Atlantic Coast Pipeline in sum-of-the-parts valuation with, $4 billion of $5-per-share of enterprise value offset by less capital commitments to complete the project. 

"We stress remaining unallocated project debt remains a further nuance to watch in coming days as investors update models,” Dumoulin-Smith said. 

The analyst said he is unsurprised by the decision on the Atlantic Coast Pipeline project given specific Nationwide Permit 12 (NWP 12) permit setbacks and associated tree felling implications on the project timeline.

D Price Action: Dominion shares were trading down 9.27% at $75.01 at the time of publication Monday.

The stock has a 52-week high of $90.89 and a 52-week low of $57.79.

Related Links:

Dominion Energy Sells Gas Assets To Warren Buffett's Berkshire, Kills Atlantic Coast Pipeline

BitTorrent CEO Justin Sun's $4.5-Million Lunch With Warren Buffett

Photo by Edbrown05 via Wikimedia

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