Surf’s Up With Hawaiian Electric Industries
Summary Hawaii Electric Industries has 95% of Hawaiian electricity market. Hawaii population and building projects are trending up. Hawaiian Electric is poised to expand into this growing market while aligning with other macro trends. Hawaii has been known as one of the most coveted tourism destinations in the United States, but has recently started to become a hot area for residency and permanent living. As mainlanders flock to the beautiful beaches and island lifestyle offered by the most recently inducted U.S. State, opportunity for investors becomes more and more apparent in a variety of different ways. A company that is fully equipped and already capitalizing on Hawaii’s growth is Hawaiian Electric Industries (NYSE: HE ). A leading electricity provider for the Hawaiian Islands, Hawaiian Electric is a strong pick in an expanding economy, especially where residencies and buildings are being built and filled at a high rate. The Opportunity Hawaiian Electric Industries is the leading electricity provider, supplying almost 95%, roughly 450,000 customers, of the Hawaiian population with electricity through its various subsidiaries, including Hawaiian Electric Light Co., and Maui Electric Co. With obvious domination of the market, HE is poised to grow with the economic and population growth of Hawaii. As population trends towards higher numbers, more projects and residencies will continue to be built, and power will need to be supplied to these new homes. Hawaiian Electric can expect to get that call based off of their dominant market share and well known reliability. A steady flow of new customers in the foreseeable future as migration to Hawaii grows, coupled with a company that already has a strong grip on the market could lead to attractive profits and growth. (click to enlarge) As one can see from the chart, after soaring housing numbers pre-recession there was an obvious lull in authorized projects. Since, there has been growth, that, while not at pre-recession numbers, is trending up. This opens the door of opportunity for a company that provides electricity to almost all new housing projects in Hawaii. If this growth continues, look to see HE increase customers and ultimately profit from the construction of new housing. Expansion is looking to be a promising opportunity in the near future as a merger between HE and NextEra Energy, Inc. (NYSE: NEE ) is in the works, currently clearing obstacles in the process of joining forces. NextEra is a clean energy company stationed in Juno Beach, Florida, with almost $17 billion in latest reported annual revenues. As one of the top ten in Fortune’s 2015 list of “World’s Most Admired Companies,” NEE will offer a variety of services and assistance for HE to reach it’s goal of an entirely renewable energy portfolio by 2045, matching Hawaiian Electric Ind. with a leading trend in the utilities macroenvironment. The Company HE is a mid-cap stock with a strong financial base. Revenues have remained steady over the past 3 years, leading many to believe a stall of sorts has occurred, but as macro conditions improve and the company expands its portfolio these numbers could see growth. Forward thinking management strategies such as the renewable energy plan set forth by HE President Connie Lau will propel the company into the future of energy, aligning with not only consumer trends, but natural trends as well. Recognition of the fruits of these plans may not be seen for a number of years, but strong strategy and pursuit of that strategy is paramount in any business, but vital to the energy and utilities sectors in particular. Dividends have remained strong at $1.24 (4.37%) per common share, a respectable number for a mid-cap stock. One thing to consider when analyzing HE as a company is the strong growth in operating income this company has experienced over the past few years, from $284 million in 2012 to $329 million in their most recent 2014 annual report. This shows internal strength in its ability to generate larger profit margins while revenues remain steady, a competency necessary to success in an industry where squeezing higher profits from sales is so integral to growth and financial health. Share prices have seen a recent decline, from around $34 in January, down to about $28 in the recent days. Expect to see a rebound in these prices if the eminent merger with NextEra is completed, as this would lead to expansion and increased internal company strength in the market. Analysts predict company growth of 19% next quarter, along with 6% for the next year. Conclusion All investment decisions should warrant caution, and HE is no different. That said, a strong company with a large market share in a growing market are good finds. HE is exactly that, a strong, financially healthy, company that owns 95% of a market that expects steady growth in the coming years. Couple that with strong expansion strategy to meet changing macro trends towards cleaner, renewable energy and HE could be a strong investment.