Domion Energy: A Contrarian Play on Mispriced Growth

Dominion Energy (D) has become a poster child for the disconnect between earnings momentum and investor sentiment. While the company's diluted EPS has surged 22% year-over-year in 2025—marking the fastest growth in over a decade—its share price has plummeted 34% over the past five years. This divergence creates a compelling contrarian opportunity, as market skepticism over dividends and sector headwinds may have oversold a utility stock primed for a valuation reset.

The EPS Growth Story Unfolding

Recent quarters have seen Dominion deliver earnings surprises that defy its reputation as a slow-growth utility. In Q1 2025, EPS hit $0.76, a 20% jump from $0.65 in Q1 2024, fueled by operational efficiencies and rising renewable energy credits. Analysts now project 2025 full-year EPS of $3.39—a 22% increase from 2024—and expect 5-7% annual growth through 2026. This acceleration contrasts sharply with the -3.2% CAGR of the prior three years, when one-time charges from pipeline cancellations and asset retirements skewed results.

Why the Share Price Lag?

The market's reluctance stems from three key factors:1. Dividend Cuts: After cutting its dividend yield from $2.00 to $1.12 in 2020 to preserve capital during the GAAP loss, Dominion has yet to restore payouts. Total shareholder return (TSR) has suffered, falling -24% over five years compared to a -19% decline in share price alone.2. Sector Sentiment: Utilities face headwinds from regulatory uncertainty and the energy transition. Dominion's pivot to renewables (now 15% of generation capacity) hasn't yet eased investor concerns about stranded fossil fuel assets.3. Balance Sheet Concerns: The $4.1B in one-time charges in 2020—including $626M in solar impairments—left lingering doubts about the company's capital allocation discipline.

Contrarian Case for a Turnaround

Despite these headwinds, three catalysts suggest Dominion is undervalued at current levels:- Earnings Visibility: 90% of 2025 EPS guidance comes from regulated utility operations, which enjoy stable rate-base growth. Virginia and South Carolina regulators have approved multi-year rate plans averaging 5.5% annual returns.- Dividend Potential: With $3.39B in projected 2025 free cash flow and $1.5B in dividend payments, the payout ratio would drop to 44% if the dividend is restored to $1.50. This compares favorably to a sector average of 60%.- Analyst Optimism: 16 of 19 Wall Street analysts rate Dominion "Buy" or "Overweight," with a 12-month price target of $55—18% above current levels. Key technical support lies at $45, where the stock has held since late 2023.

Risks and Positioning

Bear arguments hinge on regulatory delays (Virginia's pending rate case) and rising interest rates, which could pressure utility multiples. However, Dominion's 5.2% dividend yield (if restored) would offer a compelling hedge against macro uncertainty.

For investors with a 2-3 year horizon, Dominion's valuation—trading at 14x 2025E EPS versus its five-year average of 16x—presents asymmetric upside. A conservative strategy might involve dollar-cost averaging into the $45-$48 range, with a stop below $40. The stock's beta of 0.8 suggests it will outperform in a market correction while participating modestly in rallies.

Final Take

Dominion Energy embodies the adage that the best returns come from buying companies when their headlines are darkest. While the transition to renewables and regulatory challenges remain real, the company's improving EPS trajectory, dividend-friendly cash flows, and analyst bullishness suggest this undervalued utility is ripe for a re-rating. For contrarians willing to look past sector noise, Dominion's shares offer a compelling entry point into a resilient energy infrastructure play.