Want To Play Monopoly With A Utility? Play With Hawaiian Electric Industries

Apr.18.13 | About: Hawaiian Electric (HE)

Hawaiian Electric Industries (NYSE:HE) - headquartered in Honolulu, Hawaii - services approximately 95% of the State of Hawaii's population. Hawaiian Electric Industries operates Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. Maui Electric Company, Limited, and American Savings Bank, a Hawaii financial institution. Therefore, HE is a monopoly because of its consolidated business holdings.


Yahoo! Finance has posted the following data, provided by Capital IQ:

  • Valuation Measures
Market Cap 2.62B
Enterprise Value (April 16, 2013) 4.16B
Trailing P/E 18.83
Forward P/E (fye December 31, 2014) 15.28
PEG Ratio (5 year expected) 5.08
Price/Sales 0.78
Price/Book 1.64
Enterprise Value/Revenue 1.23
Enterprise Value/EBITDA 9.18
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  • Financial Highlights
Profit Margin 4.11%
Operating Margin 8.76%
Return on Assets 1.87%
Return on Equity 8.69%
Revenue 3.37B
Revenue Per Share 34.83
Quarterly Revenue Growth -1.5%
Gross Profit 301.46M
EBITDA 453.83M
Net Income Avl to Common 138.66M
Diluted EPS 1.42
Quarterly Earnings Growth -59.60%
Total Cash 219.66M
Total Cash Per Share 2.24
Total Debt 1.70B
Total Debt/Equity 104.57
Current Ratio 0.95
Book Value Per Share 16.28
Operating Cash Flow 234.54M
Levered Free Cash Flow 3.87B
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  • Trading Information
Beta 0.09
52-Week Change 5.16%
52-Week Range 23.65-29.24
50-Day Moving Average 27.29
200-Day Moving Average 26.22
Dividend Yield 1.24 (4.5%)
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Bearish Reasons

I personally find the total debt/equity ratio to be the main reason for concern. I also find the payout ratio of 87% of be a red flag. While there may be other red flags - depending on the individual investor - I'm paying attention to these two metrics.

The company's forward-looking statements has listed a variety of risks and uncertainties including the global, national, and local economy, natural disasters, interest rates, access to credit markets, changes to laws and regulations, and changes in American Savings Bank's deposits and loan portfolio.

Bullish Reasons

Despite a high debt/equity ratio and payout ratio, I feel that because HE is a monopoly in the State it isn't going anywhere! Everyone needs electricity and there is only one player in Hawaii to satisfy that need.

Despite the debt/equity ratio and payout ratios I've cited as the reason for being bearish, I would like to emphasize the company's 4.5% dividend yield. From the time I started investing in HE in 2004, I've seen the stock hit $30 a share in 2004 and 2005 and go as low as $12 in 2009. Without a major economic fluctuation, the dividend yield and principal share price is steady.

HE's 2012 Annual Report states the following regarding its energy independence initiative:

...Compared to 2008 when we first set our new clean energy targets, we have eliminated the annual use of 500,000 barrels of oil in our system, the equivalent of $69 million in 2012. And we have added 400 megawatts of capacity, producing 290 gigawatt-hours of renewable energy for our system and bringing us to 13% compared to the 15% renewable portfolio standard by 2015.

If you do enough research, you'll find other reasons to be bullish on HE. Personally, I cite being a monopoly utility with a business portfolio of utility and financial services and several renewable energy/energy independence modernization initiatives as the strong bullish points.


Obviously this was a really succinct discussion about HE. Overall, I'm neutral on HE. HE's monopoly on business portfolio of utility and financial services helps to diversify revenue streams. As an investor, I like a stable share price and a steady dividend. I don't see a reason why you shouldn't, too.

Disclosure: I am long HE, PFE, KO, MO, VZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.