DTW - Hawaiian Electric Industries May Be Seeing The Light At The End Of The Tunnel

2024-07-11 07:30:00 ET

Summary

• Hawaiian Electric Industries holds a virtual monopoly over electricity supply in Hawaii, as well as one of the biggest banks in the state of Hawaii.
• Litigation over wildfires caused a 71.58% stock price drop, but HE's share price went up 20% yesterday on hopes that this problem will soon be resolved.
• Financially, the company remains stable with a low debt-to-equity ratio and attractive valuation, pending resolution of ongoing litigation.
• There is still a risk that the proposed global settlement will not be accepted, and even if it is, the company's liability could be quite high.
• Hawaiian Electric stock might be worth buying on hopes of a settlement, but as details are not known, it is still a risky play.

Hawaiian Electric Industries, Inc. ( HE ) is an electric utility that has a virtual monopoly over the supply of electricity in the U.S. state of Hawaii. As I stated in my previous article on this company, Hawaiian Electric Industries produces and distributes approximately 95% of the electricity that is consumed by the residents of the state. The company also owns the American Savings Bank, one of the largest banks in the state, which is a very rare combination in the business world. The combination is not necessarily a bad one, though, especially for those investors who are somewhat risk-averse. This comes from the fact that the inherent characteristics of the utility business and the fact that the relatively isolated economy of the state resulted in the banking business having a very stable core deposit base. As such, the company has enjoyed very stable operating cash flows for quite some time now. As we can see here, during most of the past eleven twelve-month periods, the company's operating cash flows were fairly similar:

(all figures in millions of U.S. dollars)

For many investors, a stable cash flow is a great situation because it reduces the overall risk that we face. After all, it allows for very easy budgeting and thus should help keep the company out of any trouble with debt or other things that can result in bankruptcy....

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