There’s An Argument to Be Made Why Hawaiian Electric Industries Is a Bottom 100 Stock to Buy

Hawaiian Electric Industries (HE) is currently trading down 77% over the past year. On Tuesday, it entered Barchart.com’s Bottom 100 Stocks to Buy in the 70th spot.

In late December, The Motley Fool suggested that investors avoid the stock like the plague because the Hawaiian utility could be on the hook for up to $4.9 billion in claims from the tragic Maui wildfires last August that killed 100 people. Lawsuits claim that its equipment either caused or failed to mitigate the fires that devastated the area.

There is no question HE stock isn’t an investment for traditional buy-and-hold investors. However, if you’re an aggressive, contrarian investor, here’s why this Bottom 100 Stock to Buy could be an actual buy. 

PG&E Managed to Come Back From a Messy Financial Situation

PG&E (PCG)stands for the Pacific Gas and Electric Company. Although its history dates back to the San Francisco/Oakland area in the 1850s, it was incorporated in 1905. Based in Oakland, it is one the country’s largest utilities providing natural gas and electric service to 16 million people in Northern and Central California. 

The company has had two bankruptcies in the 21st century. 

The first time was in April 2001 when it was forced to buy expensive electricity from out of state due to a drought on the entire West Coast. The fallout from its bankruptcy -- it emerged from bankruptcy in April 2004 -- is said to have cost its California customers between $6.2 billion and $8.2 billion in above-market prices over the next eight years. 

In January 2019, the utility's parent corporation filed for bankruptcy protection, with more than $30 billion in potential liabilities from wildfires between 2015 and 2018 that were argued to have been caused, at least in part, by poorly maintained power equipment. 

The company emerged from bankruptcy in July 2020 with $5.4 billion and 22.19% of its stock put into a trust for victims of the wildfires. With a new company and a new board, interim CEO Bill Smith went about finding a permanent CEO. 

In November 2020, Patricia Poppe, the CEO of CMS Energy (CMS)in Michigan, left that job to take on the enormous challenge of righting the ship at PG&E. She remains CEO today. 

So, what I’ve just told you is a good news, bad news situation. The good news is utilities can come back from bankruptcies and wildfires. The bad news is that only rarely in bankruptcy situations do common stock owners get anything for their equity.

Nonetheless, it can stay in business. 

It’s Still Making Money

The company reported adjusted net income of $49.3 million on $897.2 million in revenue in Q1 2024. Both the bottom line and top line were down from Q1 2023 —$54.7 million on $928.2 million in revenue—but they were still positive. 

“We continue to work in earnest with key stakeholders to help our community recover from the devastating impacts of the Maui wildfires. The State’s One ‘Ohana fund has seen steady uptake and the Governor recently extended the registration deadline, and mediation discussions are underway with those impacted by the fires,” stated HEI CEO Scott Seu. 

Given Hawaiian Electric supplies electricity to 95% of the 1.4 million residents on Oahu, Maui, Hawaii, Lanai, and Molokai, which are five of Hawaii’s seven main islands, it’s in the state's best interests to keep the utility solvent. So far, the company’s financial situation remains strong, although that could change quickly based on the courts' determination for all of these lawsuits. That’s the million-dollar unknown. 

But for now, it’s business as unusual for Hawaiian Electric. 

What I find interesting about HEI is its bank subsidiary, American Savings Bank. According to the Bank Reg Blogon Substack, HEI is “the only publicly traded US utility company to own a bank.” 

As part of a diversification move by the utility that started in 1983, it acquired the Hawaii branches of the Utah-based American Savings and Loan Association for $113 million in 1988, which had gotten caught up in the savings and loans crisis of the mid-1980s. 

At the end of 2023, ASB had 35 branches across the five islands mentioned above with 25 of them on Oahu. It finished this past year with $9.7 billion in assets and $8.1 billion in deposits. The bank’s revenues accounted for 11% of HEI’s revenue in 2023 and 27% of its net income. In previous years, the income contribution has been even higher. 

ASB was named the best bank in Forbes’ America’s Best-In-State Banks 2023 list based on customer feedback and 31,000 survey participants. 

The Bottom Line on HE Stock

In April, many news sources reported that HEI was considering all options for ASB, including a full or partial sale and even a spin-off into a publicly traded company. Evercore ISI analyst Michael Lonegan valued the bank as high as $800 million, slightly less than the holding company’s market cap of $908 million. 

What management and the board do on this front depends on what happens with the Maui situation. It wouldn’t look too good to pay some special dividend on the sale of the bank, so it may do nothing.

If you’re up for a gamble, the Jan. 17/2025, $15 call has a current ask price of $0.54 and a down payment of just 3.6%. With a delta of 0.21118, you can double your money on the option by selling the call before expiration if its share price increases $2.56 (31%) over the next seven months. 

Buying calls limits your initial exposure to $54 per contract.

Mind you, a lot has to go right, but some actionable steps by HEI on the bank would certainly help get it there.   

 

More Stock Market News from Barchart

• Halliburton's Q2 2024 Earnings: What to Expect
• Roper Technologies Earnings Preview: What to Expect
• 2 Top-Rated Semiconductor Stocks Set to Outperform
• Here's What to Expect From Kinder Morgan's Next Earnings Report

On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.