New era of energy mergers is imminent. Jefferies Financial Group Inc. is bullish on Dominion Energy (D.US): both offensive and defensive.

Investment bank Jefferies Financial Group Inc. has upgraded Dominion Resources (D.US) from "hold" to "buy" and raised its target price from $65 to $76. The bank expects the acquisition of Dominion Resources by NextEra Energy (NEE.US) to receive approval smoothly, and regardless of whether the deal goes through, Dominion Resources has an attractive risk-reward ratio. Analysts led by Paul Zambaldo at Jefferies Financial Group Inc. stated that the upgrade and target price increase were not solely based on the "arbitrage logic of large price spreads" related to the acquisition. Jefferies Financial Group Inc. believes there is upward potential in NextEra Energy's valuation, with a potential premium of about 14% in its P/E ratio; and currently, there is about a 6% valuation multiple gap between the two stocks. Buying Dominion Resources is equivalent to positioning in NextEra Energy at a level close to the average P/E ratio. Even if the acquisition fails, the value of Dominion Resources will be significantly higher than before. Zambaldo stated that if the deal is terminated, NextEra Energy will need to pay a $3.4 billion termination fee. This fund can support Dominion Resources' investment of $8 billion in energy storage and transmission facilities without issuing new shares. This will drive Dominion Resources' annualized compound growth rate of earnings per share to increase by 8%-9%, and performance is expected to accelerate significantly. For investors who are positive about the approval of this acquisition, Dominion Resources is a more attractive investment choice in terms of risk-reward ratio, as it can fully utilize the potential valuation increase of NextEra Energy and hedge downside risks with the stock price spread and Dominion Resources' strong independent operations. In the context of the surge in artificial intelligence (AI) power demand, NextEra Energy has agreed to acquire Dominion Energy Inc for approximately $67 billion in stock, making it the largest utility acquisition in U.S. history. This move will create a utility giant with operations extending from Florida to a dense data center cluster in Virginia. NextEra Energy will pay an equivalent of approximately $76 per share for Dominion Energy Inc. As of the Thursday's closing of the US stock market, Dominion Resources fell by 0.27% to $67.38, with a cumulative increase of 16% year-to-date; NextEra Energy fell by 0.46% to $87.25, with a cumulative increase of 9.4% year-to-date.