Dominion Resources, Inc. (D): Is This Company Headed Higher?

Dominion Resources, Inc. (NYSE:D) reported earnings last Thursday, underwhelming investors for Q1 2013. Stormy weather, service outages, and shrinking demand put a damper on its earnings, but a gas-centic strategy could keep Dominion Resources, Inc. (NYSE:D) pulling profits for years to come. Let’s see if this natural gas stock has what it takes to earn a place in your portfolio.

Number crunching
Dominion Resources, Inc. (NYSE:D) raked in $3.52 billion in revenue for Q1 2013, matching 2012’s first quarter but missing analyst estimates of 1.5% growth.

The bottom-line numbers look slightly worse, with $0.83 EPS falling 2.4% below Mr. Market’s earnings expectations. These newest numbers are also $0.02 below Q1 2012’s earnings, and a full $0.10 below 2011’s first-quarter EPS.

For a peck of perspective, here’s how Dominion Resources, Inc. (NYSE:D)’s sales and EPS have held up over the past five years:

D EPS Diluted Annual data by YCharts

Since 2008, sales have fallen nearly 20%, while diluted EPS is down 83%. The Southern Company (NYSE:SO), a slightly larger company, has seen sales drop 3% while diluted EPS headed 19% higher. PPL Corporation (NYSE:PPL), a slightly smaller utility than Dominion Resources, Inc. (NYSE:D), has managed to boost revenue over 50%, but diluted EPS is just 5% above its 2008 level.

SO Revenue Annual data by YCharts.

Did Dominion just get dominated?
There’s no beating around the bush: Q1 was not nice to Dominion. One-time negatives like storm restoration costs and a delayed in-service date of a natural gas processing plant might not be long-term worries, but there are two key components that investors need to keep an eye on in the quarters to come.

First: falling sales. Although this is a common trend across all utilities, Dominion Resources, Inc. (NYSE:D) relies on regulated electricity sales for 50% of its revenue, a significant chunk of its profit pie. Regulated utilities offer some of the steadiest rates of return on the stock market, but overall sales still slump if customers use less energy. Ameren Corp (NYSE:AEE) is currently cutting out its merchant generation business entirely, a move that could keep its profits in the pits if electricity use doesn’t pick up.

Keeping it natural
The second indicator of this natural gas stock’s future is (of course) natural gas. Not only does the utility use natural gas for 17% of its generation capacity, but its Dominion Energy subsidiary is also busy making the most of midstream margins. Q1 EBIT clocked in at $301 million, well above Dominion’s estimated $255 million to $285 million range.