Dominion Energy's Earnings Crossroads: Growth vs. Value in a Sluggish Sector

Dominion Energy (D) stands at a pivotal moment as it prepares to report second-quarter 2025 earnings on August 1. With its stock price hovering near $56.55 and the utilities sector underperforming the broader market, investors are weighing whether the company's earnings momentum justifies its valuation or presents an undervalued opportunity. Let's dissect the numbers to determine where the balance tips.

The Earnings Momentum: A Strong Start, but Can It Hold?

Dominion's first-quarter 2025 earnings delivered a 69% surge in operating EPS to $0.93 from $0.55 in the same period last year. This growth, driven by regulated utility segments in Virginia and South Carolina, reflects the benefits of rate hikes, weather-related demand, and cost discipline. The Corporate and Other segment also contributed, with interest expenses falling by $0.16 per share.

However, the Contracted Energy segment stumbled slightly due to nuclear plant outages, highlighting execution risks. The company reaffirmed its full-year 2025 operating EPS guidance of $3.28–$3.52, which implies a 22% increase from 2024's $2.77. Analysts project Q2 EPS of $0.77—40% higher than last year—a figure that could lift confidence if met or exceeded.

Valuation: Overpriced or Undervalued?

Dominion's trailing P/E of 22.1x as of July 2025 exceeds the utilities sector's average of 17.1x and key peers like Duke Energy (20.9x) and American Electric Power (18.0x). Yet its forward P/E of 16.87—lower than the industry's 18.15—suggests the market is pricing in slower growth ahead. This discrepancy raises a critical question: Is Dominion overvalued relative to its peers, or does its growth profile justify its premium?

The PEG ratio, which factors in earnings growth, adds nuance. Dominion's PEG of 1.24 is favorable compared to its 5%-7% long-term growth guidance. Meanwhile, the sector's average PEG of 2.64 implies that Dominion's valuation is reasonable given its earnings trajectory. This makes the stock a relative bargain in a sector where many utilities trade at higher multiples.

Risks in the Wind (and Tariffs)

Dominion's $10.8 billion Coastal Virginia Offshore Wind project—a cornerstone of its clean energy strategy—is 55% complete. While progress is on track, tariff-related costs could add $500 million by 2026. Management insists these risks are manageable through U.S.-based sourcing and long-term contracts, but delays or cost overruns could pressure margins.

Additionally, the company's proposed rate increases for high-energy users in Virginia face regulatory scrutiny. Missteps here could disrupt cash flows, especially as Dominion relies on regulated utilities for 80% of its earnings.

Investment Considerations: Buy the Dip or Wait?

Dominion's stock has underperformed the S&P 500 in July, down 1.1%, possibly reflecting broader sector jitters. The Zacks Rank of #3 (“Hold”) underscores cautious sentiment. Yet with a dividend yield of 2.6%—above the sector average—and a backlog of projects like the $1.5 billion Chesterfield Energy Center, Dominion offers stability amid growth.

Investors should consider:
1. Near-Term Catalysts: A strong Q2 report could rekindle momentum, especially if offshore wind milestones are met.
2. Valuation Trade: The stock's forward P/E offers a margin of safety versus peers, making it a buy on dips below $55.
3. Long-Term Bet: Its regulated model and renewable investments position it to benefit from rising energy demand and decarbonization trends.

Conclusion: A Hold with Upside Potential

Dominion Energy is caught between robust earnings growth and a valuation that's neither cheap nor overpriced. While its premium to the sector is justified by its offshore wind ambitions and stable utility cash flows, investors must weigh execution risks against its 22% annual earnings target. Historically, earnings releases have provided a positive catalyst, with a 64% win rate in the three days following reports since 2022 and a maximum return of 1.26% by day 38, though longer-term gains showed a 57% win rate. This suggests the August 1 report could drive near-term momentum. For now, a Hold stance makes sense, but a positive Q2 report or further sector rotation into utilities could shift the calculus toward Buy. Dominion's story hinges on converting project promises into profit—and investors will get their first update on August 1.