Hawaiian Electric’s SWOT analysis: stock navigates wildfire aftermath

Hawaiian Electric Industries Inc . (NYSE:HE), a key player in Hawaii’s power and utilities sector, has been navigating significant challenges in the aftermath of the 2023 Maui wildfires. The company’s recent developments, financial performance, and strategic initiatives have drawn considerable attention from analysts and investors alike. This comprehensive analysis examines HE’s current position, future prospects, and the factors influencing its stock performance.

Recent Developments and Legal Progress

Hawaiian Electric has made substantial progress in addressing the legal and financial ramifications of the 2023 Maui wildfires. A pivotal development came with a favorable Hawaii Supreme Court decision that limits insurers’ subrogation rights in mass tort claims. This ruling is expected to streamline the settlement process and reduce potential financial liabilities for the company.

The company has reached significant milestones in its wildfire settlement agreements, with progress in both individual plaintiff and class settlements. The Maui 2nd Circuit Court has granted preliminary approvals, with final approvals anticipated by late 2025 or early 2026. Following these approvals, HE is set to make its first settlement payment from a $479 million fund.

Financial Performance and Outlook

Despite the challenges posed by wildfire liabilities, HE has maintained a relatively stable financial position. Currently trading at $10.49, the company’s market capitalization stands at $1.81 billion. While not profitable over the last twelve months, with an EBITDA of $514.91 million, analysts project earnings per share (EPS) for 2025 to 2027 at $1.00, $1.00, and $1.05 respectively, indicating a relatively flat EPS profile. According to InvestingPro, analysts predict the company will return to profitability this year, with an EPS forecast of $0.83 for 2025.

HE’s financial strategy has included significant moves to strengthen its balance sheet. The company divested American Savings Bank, using the proceeds to retire substantial debt and improve its financial position. This strategic decision, coupled with a block equity issuance in September 2024, has bolstered HE’s liquidity, demonstrating its ability to access capital markets effectively.

Regulatory and Legislative Environment

The regulatory landscape plays a crucial role in HE’s future prospects. Recent legislative actions have been supportive of the company’s settlement efforts and future wildfire risk mitigation strategies. Senate Bill 897 establishes a liability cap on economic damages from future wildfires and authorizes securitization for safety improvements. Additionally, Senate Bill 1501 provides financial backstops for independent power producers, supporting clean energy initiatives.

These legislative developments are viewed positively by analysts, as they provide a framework for managing future risks and supporting the company’s long-term stability. The potential establishment of a Wildfire Recovery Fund, as proposed in Senate Bill 1201 and House Bill 982, could further enhance HE’s ability to manage wildfire-related liabilities efficiently.

Strategic Initiatives and Investment Plans

Hawaiian Electric has outlined ambitious plans for capital investment, particularly in wildfire safety measures and infrastructure improvements. The company plans to allocate nearly $400 million for wildfire safety over three years, demonstrating a commitment to risk mitigation and operational resilience. InvestingPro analysis reveals a current ratio of 1.25, indicating sufficient liquid assets to meet short-term obligations, though the overall Financial Health Score remains in the weak category, emphasizing the importance of these strategic investments.

This significant investment strategy is expected to drive future growth and potentially improve the company’s risk profile. Analysts note that these initiatives, coupled with the company’s efforts to return to an investment-grade credit rating, could position HE favorably for long-term success.

Bear Case

How might ongoing wildfire liability risks impact HE’s financial stability?

Despite recent legal victories and settlement progress, Hawaiian Electric continues to face significant financial challenges related to wildfire liabilities. The company’s obligation to pay approximately $479 million annually for four years as part of the settlement agreement places a substantial burden on its financial resources. This ongoing liability could limit HE’s ability to invest in growth initiatives and may impact its credit ratings.

Furthermore, the potential for future wildfires remains a persistent risk. While legislative efforts aim to mitigate some of these risks, the unpredictable nature of such events and the evolving regulatory landscape create uncertainty. This uncertainty could lead to increased borrowing costs and may deter some investors, potentially impacting the company’s stock valuation and financial flexibility.

What challenges does HE face in implementing new regulatory frameworks?

The implementation of new regulatory frameworks, particularly those related to wildfire risk management and liability caps, presents significant operational and financial challenges for Hawaiian Electric. Adapting to these new regulations may require substantial investments in infrastructure, training, and risk management systems, which could strain the company’s resources in the short term.

Moreover, the effectiveness of these new frameworks remains untested, and there may be unforeseen complications or legal challenges that could arise during implementation. The company must navigate these changes while balancing the interests of shareholders, customers, and regulators, which could prove to be a complex and potentially costly process.

Bull Case

How could the recent court rulings and legislative support benefit HE’s long-term prospects?

The favorable Hawaii Supreme Court decision limiting insurers’ subrogation rights represents a significant de-risking event for Hawaiian Electric. This ruling, combined with ongoing legislative efforts to establish a Wildfire Recovery Fund and liability caps, could substantially reduce the company’s exposure to future wildfire-related liabilities.

These developments may pave the way for HE to regain investment-grade credit ratings, which would lower borrowing costs and improve access to capital markets. The reduced financial uncertainty could also allow the company to focus more resources on growth initiatives and infrastructure improvements, potentially leading to improved operational efficiency and long-term profitability. InvestingPro’s Fair Value analysis suggests the stock is currently slightly undervalued, presenting a potential opportunity for investors looking to capitalize on the company’s recovery efforts. For a complete analysis of HE’s valuation metrics and additional insights, explore our comprehensive Pro Research Report, available to subscribers.

What potential does HE’s investment in wildfire safety measures have for future growth?

Hawaiian Electric’s commitment to investing nearly $400 million in wildfire safety measures over three years demonstrates a proactive approach to risk management. This significant investment not only addresses immediate safety concerns but also positions the company as a leader in wildfire prevention and mitigation strategies.

These investments could yield multiple benefits, including reduced liability risks, improved operational reliability, and enhanced public trust. As climate change continues to exacerbate wildfire risks, HE’s expertise and infrastructure improvements could become valuable assets, potentially opening new revenue streams through consulting or technology licensing. Furthermore, this focus on safety and reliability aligns with regulatory priorities, which could lead to more favorable treatment in future rate cases and regulatory decisions.

SWOT Analysis

Strengths:

• Progress in legal settlements and favorable court rulings
• Strong liquidity position and successful debt reduction
• Strategic divestment of non-core assets (American Savings Bank)

Weaknesses:

• Ongoing wildfire liability concerns
• Relatively flat EPS profile
• Regulatory lag impacting earnings growth

Opportunities:

• Potential credit rating upgrades as settlements finalize
• New legislative support for wildfire risk management
• Significant planned investments in safety and infrastructure

Threats:

• Future wildfire risks and potential liabilities
• Regulatory uncertainties and implementation challenges
• Potential for increased competition in the renewable energy sector

Analysts Targets

• Evercore ISI: $14.00 (May 29th, 2025)
• Jefferies: $10.00 (February 24th, 2025)
• Barclays: $10.00 (February 7th, 2025)

Hawaiian Electric Industries faces a complex landscape of challenges and opportunities as it navigates the aftermath of the Maui wildfires and positions itself for future growth. While significant progress has been made in addressing legal and financial hurdles, the company’s success will depend on its ability to effectively implement new safety measures, adapt to evolving regulatory frameworks, and capitalize on strategic investments. With revenue of $3.17 billion in the last twelve months and a beta of 0.65, indicating lower volatility than the broader market, investors and analysts will be closely watching HE’s performance as it strives to balance risk mitigation with long-term value creation in the dynamic Hawaiian energy market. To gain deeper insights into HE’s financial health, valuation metrics, and expert analysis, visit InvestingPro, where you’ll find our comprehensive Pro Research Report and additional investment tools.

This analysis is based on information available up to June 14, 2025.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on HE. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore HE’s full potential at InvestingPro.

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