Bullish indicating open at $55-$60, IPO prices at $37
On Monday, Evercore ISI analyst Durgesh Chopra increased the price target for Hawaiian Electric (NYSE: HE) shares to $12.00, up from $11.00, while maintaining an "In Line" rating. The stock, currently trading at $10.76, has shown resilience with a 10.59% gain year-to-date. The revision follows a positive development from the Hawaii Supreme Court concerning wildfire-related legal actions. According to InvestingPro analysis, the company appears undervalued compared to its Fair Value, suggesting potential upside from current levels.
Chopra noted that the Hawaii Supreme Court’s recent ruling suggests insurers may not be able to pursue separate legal actions against those deemed responsible for wildfires. This development could reduce legal uncertainties for Hawaiian Electric, which currently has a market capitalization of $1.86 billion. The analyst anticipates that while insurers might seek to appeal to the U.S. Supreme Court, it is improbable that the higher court would take the case unless it involves constitutional or due process issues.
The analyst also highlighted the significance of upcoming legislative dates for Hawaiian Electric. The first crossover for bills will occur on March 6th, which will indicate the initial legislative stance on the proposed bills HB982 and SB1201. These bills are crucial as they could establish a wildfire insurance fund, securitization measures, and limit liabilities. The second crossover date is set for April 10th, and the legislative session is scheduled to adjourn on May 2nd. The outcome of these bills could impact the way a potential insurance fund is financed, whether through shareholders or customer securitization.
Evercore ISI’s updated earnings per share (EPS) estimates for Hawaiian Electric are $1.00 for 2025 and 2026, with a slight increase to $1.05 in 2027. These projections assume a flat EPS profile due to regulatory lag and dilution counterbalancing net income growth from significant capital expenditure increases in 2026 and 2027. The analyst applied an 11.5x multiple to the 2027 EPS estimate, which is a 25% discount compared to peer utilities, factoring in a weak EPS outlook, financing overhang, and some wildfire risk.
Despite these challenges, Chopra sees potential upside to the target price if the settlement is finalized and if the wildfire legislation is favorable. The analyst believes that Hawaiian Electric’s wildfire risk is lower than that in California, citing a friendlier climate and a more manageable service territory. InvestingPro subscribers can access a comprehensive Pro Research Report that provides detailed analysis of Hawaiian Electric’s risk factors, financial health (currently rated as FAIR), and growth prospects among 30+ key metrics and insights.
In other recent news, Hawaiian Electric Industries (NYSE:HE) reported significant financial challenges for Q4 2024, primarily due to wildfire-related expenses. The company faced a full-year loss from continuing operations amounting to $1.3 billion, largely driven by $1.9 billion in pre-tax wildfire settlement accruals. Despite these financial setbacks, Hawaiian Electric achieved a 36% renewable portfolio standard for the year. Additionally, the company sold 90.1% of American Savings Bank for $450 million, marking a strategic move to simplify its business model. Analysts from Evercore engaged with the company regarding its confidence in the settlement process following a favorable Hawaii Supreme Court ruling. Hawaiian Electric executives expressed optimism about the settlement’s progress and the ongoing legislative efforts to establish a wildfire recovery fund. The company plans to invest approximately $450 million in a wildfire safety strategy over the next three years. They also aim to return to an investment-grade credit rating, with the first settlement payment expected in late 2024 or early 2025.
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