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Cheniere Energy, Inc. (LNG), ConocoPhillips (COP): Is Dominion Resources, Inc. (D) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Dominion Resources, Inc. (NYSE:D) fit the bill? Let’s look at what its recent results tell us about its potential for future gains.

Dominion Resources, Inc. (D)What we’re looking for
The graphs you’re about to see tell Dominion Resources, Inc. (NYSE:D)’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Dominion Resources, Inc. (NYSE:D)’s key statistics:

D Total Return Price Chart

D Total Return Price data by YCharts

Passing Criteria 3-Year* Change Grade
Revenue growth > 30% (8.6%) Fail
Improving profit margin (89.3%) Fail
Free cash flow growth > Net income growth (46.5%) vs. (90.2%) Pass
Improving EPS (90%) Fail
Stock growth (+ 15%) < EPS growth 80.7% vs. (90%) Fail

Source: YCharts.
*Period begins at end of Q2 2010.

D Return on Equity Chart

D Return on Equity data by YCharts

Passing Criteria 3-Year* Change Grade
Improving return on equity (90.1%) Fail
Declining debt to equity (50.1%) Fail
Dividend growth > 25% 23% Fail
Free cash flow payout ratio < 50% Negative FCF Fail

Source: YCharts.
*Period begins at end of Q2 2010.

How we got here and where we’re going
This is one ugly performance from a supposedly sterling stock. Dominion Resources, Inc. (NYSE:D) earned only one out of nine passing grades, and even that lone pass was granted more on a technicality than because of a genuine improvement. Over the past three years, Dominion Resources, Inc. (NYSE:D)’s free cash flow has diverged significantly from its net income as the cost of its infrastructure continues to weigh heavily. Despite evident weaknesses, Dominion’s shareholders have enjoyed robust stock price growth over the past three years as this defensive darling attracts spooked investors looking for a steady yield. Is this rebound sustainable, or will Dominion Resources, Inc. (NYSE:D)’s fundamental weaknesses catch up it to the end? Let’s dig a little deeper to answer that question.

Dominion seems poised to capitalize on a trend toward LNG exports, as the U.S. Department of Energy has recently approved its fourth LNG export facility, located in Cove Point, Md. This will enable the company to export LNG to non-Free Trade Agreement countries across the world, especially India and Japan, which offer huge market potential.

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