We have maintained our Neutral recommendation on Hawaiian Electric Industries Inc. (HE) on Jun 12, 2013 based on the company’s constructive regulatory structure and strong regulated growth opportunities partially offset by lower electricity volume sales and uncertainty over the Japanese economy. Also, the company has recently lowered its earnings guidance for 2013.
Why the Reiteration?
Hawaiian Electric is the largest provider of electricity in the state of Hawaii supplying to more than 95% of the state’s population. The prospects of the company arise from the fact that its two major industries, tourism and construction, are experiencing growth.
Meanwhile, the company is on track to comply with the Hawaii Clean Energy Initiative that calls for generating 70% of its energy needs from renewable sources by 2030. With a distinct focus on renewable energy projects, the company targets capital expenditure of approximately $2.9 billion over the next five years. Also, the company expects annual rate base growth in the range of 5% to 10%.
The company’s recent move towards underwriting public offering of its common stock will fulfill all equity needs through 2014. The company intends to use the net proceeds for investment in its utility subsidiaries, to repay borrowings incurred to finance capital expenditures and for working capital purposes.
Unlike its peers, the company is also engaged in providing banking services to individual and commercial customers. Its banking subsidiary is one of the largest banks in Hawaii. During the quarter, American Savings Bank delivered strong loan growth that helped in offsetting the impact of the low interest rate environment and gained market share in its mortgage banking business. The bank was one of the top ranked lenders in the state for the quarter.
Apart from the company’s focus on improving operational excellence, we expect the company’s other approved cost recovery mechanisms and constructive regulatory outcomes in its rate cases to keep the growth story intact.
Despite these positives, the company’s dull first quarter performance as a result of higher non-interest and operation and maintenance expenses, lower electricity volume sales, a tourism-dependant Hawaiian economy, lowered guidance and uncertainty over the Japanese economy remain matters of concern for the company.
Other Stocks to Consider
Hawaiian Electric currently has a Zacks Rank #3 (Hold). Stocks that are well placed in the energy space are ALLETE, Inc. (ALE), El Paso Electric Co. (EE) and DTE Energy Company (DTE), all with a Zacks Rank #2 (Buy).
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