On Nov 18, 2015, we have updated a research report on Hawaiian Electric Industries Inc.HE .
Honolulu-based Hawaiian Electric Industries Inc., incorporated in 1981, is a holding company with subsidiaries engaged in the electric utility, banking and other businesses operating primarily in the state of Hawaii. Electricity is provided by the company's three subsidiaries: The Hawaiian Electric Co., Maui Electric Co. and Hawaiian Electric Light Co. Hawaiian Electric's banking business centers around its subsidiary American Savings Holdings, Inc. (a holding company) and its subsidiary, American Savings Bank; HEI Properties, Inc.; Hawaiian Electric Industries Capital Trusts II and III, and The Old Oahu Tug Service, Inc.
Hawaiian Electric reported adjusted earnings of 49 cents per share in the third quarter of 2015, on par with the Zacks Consensus Estimate. Total revenues in the reported quarter were $717.2 million, down 17.3% year over year primarily owing to lower contribution from Electric Utility. For 2015, the company has lowered its earnings per share guidance to the range of $1.25-$1.30 from the prior guidance of the low end of the $1.64-$1.74 range. The projection was lowered due to headwinds in the form of lower Rate Adjustment Mechanism revenues and lower allowances for funds used during construction along with software write-off, which may not be entirely offset by a decline in expenses and better fuel efficiency.
Hawaiian Electric utilizes natural gas as a key fuel for power production. Any disruption in fuel supplies will affect the company's ability to generate power, which will ultimately impact its profit margins. Also, the company's heavy dependence on third-party suppliers for fuel and purchased power may impact its performance adversely and result in additional expenses. Again, Hawaiian Electric's facilities are subject to various risks resulting from plant outages and weather conditions.
On the positive side, Hawaiian Electric continues to make systematic investments in utility infrastructure development projects, primarily adding new generation facilities, replacing aging infrastructure and restoring transmission and distribution assets. It is also progressing smoothly to comply with the Hawaii Clean Energy Initiative, which calls for generating 70% of its energy from renewable sources by 2030. The Hawaii Public Utilities Commission also supports the company's focus to reduce its dependence on imported fossil fuels by increasing the utilization of renewable resources. The company has already exceeded Hawaii's 2015 required renewable portfolio standard of 15%.
Hawaiian Electric has entered into a definitive agreement, under which it will be acquired by NextEra Energy. Post transaction, Hawaiian Electric expects to reduce customer bills in the region by 20% in the next 15 years and generate 100% power from renewable sources by 2045. By leveraging the expertise of NextEra Energy, Hawaiian Electric strives to modernize its existing grids and incorporate more rooftop solar in Hawaii. This will drive long-term growth and create value for its customers.
Hawaiian Electric carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the power sector are Korean Electric Power KEP , Ameren Corporation AEE and Calpine Corp. CPN . While Korean Electric sports a Zacks Rank #1 (Strong Buy), both Ameren Corporation and Calpine Corp. carry a Zacks Rank #2 (Buy).