Summary
Hawaiian Electric is the dominant utility in the state of Hawaii, which was more affected than any other state by the coronavirus lockdowns.
The company weathered through this crisis quite well and has returned to a state of growth.
The company has one of the strongest balance sheets in the industry, which likely helped it ride through the pandemic.
The company’s free cash flow can easily support its 3%+ yield.
The firm is positioned to grow EPS at a 7% rate and appears undervalued relative to other utilities.
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Sebastian Frank/iStock via Getty Images Hawaiian Electric Industries, Inc. ( HE ) is by far the largest supplier of electricity on the Hawaiian Islands. This admittedly may be the last state that people think of when it comes to finding a utility to invest in, but it does share many of the same characteristics that other utilities do. In particular, the company boasts relatively stable cash flows that are not usually affected by fluctuations in the broader economy along with boasting a respectable 3.18% yield. As is the case with many other utilities, Hawaiian Electric has also been quite active in the development and deployment of renewable sources of energy, which are generally considered to be the future and, indeed, Hawaii might be the ideal place for the use of renewable energy sources. Finally, as this utility is very underfollowed relative to its peers, it appears that it could be incredibly undervalued at the current price. About Hawaiian Electric Industries
As mentioned in the introduction, Hawaiian Electric Industries is the largest electric utility in the state of Hawaii. The company serves 95% of the state’s population and has a presence on all of the islands that comprise the state: Source: Hawaiian Electric Industries
In addition to being the state’s largest electric utility, Hawaiian Electric Industries also owns the American Savings Bank, which is one of the largest banks in the state with over $9 billion in assets. The electric utility accounts for a much larger proportion of the company’s net income than the bank does so this company should be thought of as an electric utility with a bank attached. We will analyze it as such.
Hawaii was more affected than other states by the outbreak of the coronavirus. This is due to the state’s dependence on the tourism industry, which was crushed by the travel bans that accompanied the lockdowns. This caused the state’s unemployment rate to surge to about 10%. This could pose a problem because unemployed people have severe difficulty paying their bills, including their utility bills. With that said though, people in dire financial straits do tend to prioritize paying their utility bills over most discretionary expenses but it is extremely difficult to even purchase necessities if they have no income for an extended period. This is one reason why the National Energy Assistance Directors’ Association stated that approximately $24 billion worth of utility bills were unpaid at the end of 2020. Despite this and the remarkably high unemployment rate, Hawaiian Electric Industries enjoyed remarkably stable revenues straight through the pandemic:
(all figures in millions of USD)
One thing that we notice here is that revenues jumped significantly from the second to the third quarters of 2021. This may seem to disprove the concept that the company has very stable revenues but in fact, the third quarter always has the highest revenues. This is because this quarter corresponds to the summer months. These are the hottest months of the year and see the heaviest air conditioning use, which of course results in higher-than-normal electric consumption. This is true in all states but is a notable problem in Hawaii given the climate of the state.
One thing that we commonly see among utility companies is steady growth, with revenues and net income increasing on an annual basis. This was certainly the case for Hawaiian Electric Industries, which has seen its net income and earnings per share for the first nine months of the year come in higher than the equivalent period of last year: Source: Hawaiian Electric Industries
Admittedly, some readers might point out that the company’s third-quarter 2021 numbers were somewhat worse than the year-ago figures. That is certainly true but this was mostly due to accounting peculiarities and not any problems with the business itself. The reason why utilities generally […]
source Hawaiian Electric: A Top-Notch Choice For Utility Investors
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