Dominion Resources, Inc. (D) is a producer and transporter of energy, mainly providing electricity, natural gas and related services to customers in the eastern region of the United States. On August 6, 2013, the company reported second-quarter earnings of $0.62 per share which missed the consensus of analyst estimates by $0.03. The stock is up 16.36% excluding dividends in the past year, and is beating the S&P 500, which has gained 15.59% in the same time frame. I currently hold Dominion in my growth portfolio and with all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying some more stock in the company right now.
The company currently trades at a trailing 12-month P/E ratio of 110.64, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 17.47 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (17.31), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively (in general the company is overpriced on growth, but I don't believe it to be for a utility) priced based on a 1-year EPS growth rate of 6.39%. In the utilities sector of my growth portfolio I like looking at 1-year earnings growth greater than 5% and 5-year earnings growth of greater than 5% as well.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.63% with a payout ratio of 402% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.5%, 2.2% and 3.2%, respectively, which are all respectable values but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.63% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 10 years at a 5-year dividend growth rate of 7.6%.
Looking first at the relative strength index chart [RSI] at the top, I see the stock coming down from overbought territory with a value of 60.58 with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is below the red line with the divergence bars increasing in height to the downside, indicating the stock may come up on some downward momentum. As for the stock price itself ($62.09), I'm looking at $65.49 to act as resistance and $61.03 to act as support for a risk/reward ratio, which plays out to be -1.71% to 5.48%.
- ISI upgraded the stock back in mid-September to a "buy" from a "hold" rating citing Dominion's intention to form a master limited partnership in 2014. ISI also raised the price target on the stock from $61 to $66.
- JP Morgan (JPM) also hiked the price target on Dominion from $61 to $68 back in mid-September. At the time, Dominion was authorized to export natural gas, making JP Morgan upgrade the stock from "Neutral" to "Overweight."
Dominion is fairly valued based on future earnings and expensive on growth, but what utility isn't? The technical situation of how the stock is currently trading is telling me we might be seeing some more downward pressure for now. The good dividend yield, earnings growth potential, and formation of a MLP are what I like about the company, but personally I'm not going to be buying right now. Right now I'm basically flat on my position (-0.67%) and I will continue to hold onto the shares I have, reinvesting the dividends, but I would like to see how October shakes out with everything that is going on in our nation's capital.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!