Hawaiian Electric’s Value Under Siege: Risks of Complete Devaluation Due to Ongoing Woes
Hawaiian Electric Industries Inc. experienced its largest decline in over 40 years due to concerns that the company was responsible for the devastating fires on Maui.
A Wells Fargo analyst cautioned that the resulting liabilities could be significant enough to completely erase the value of the company’s utility division.
This week, the stock has dropped 58%, the steepest drop in data dating back to 1980. Investors were concerned that the company’s power equipment may have started the fire, though no official cause has been determined.
The risk has caused investors and Wall Street analysts to significantly lower their expectations for the company, which also owns American Savings Bank FSB. Guggenheim analyst Shahriar Pourreza reduced his price target on the stock, saying the “shares are untouchable.”
Jonathan Reeder at Wells Fargo slashed his estimate for the utility business from $25 to $8, advising clients to assume it is currently worthless.
“We believe it is prudent to assume the utility is worth $0/sh as property damage, loss of life plus pain and suffering, and economic losses are likely well into the billions of dollars, far exceeding the utility’s pre-wildfire equity value,” Reeder told clients in a note.
PG&E Corp. was forced into bankruptcy by wildfires after its equipment was found to have caused some of the blazes, including one in 2018 that killed over 80 people and destroyed the town of Paradise.
Hawaiian Electric recovered some of its losses on Friday, rising 14% after the company said in a filing that it is seeking expert advice. Hawaii Electric also stated that there is no precedent in Hawaii for the application of the type of legal principle that played a role in the California utility’s demise.
“The goal is not to restructure the company but to endure as a financially strong utility that Maui and this state need,” the company said in the filing.
The company did not respond to an inquiry about analyst opinions.
Finding Stability Amid Uncertainty: Factors Influencing the Stock’s Recent Rebound
Prior to Friday’s rebound, the stock had fallen for eight consecutive days, and the value of the company’s banking unit may limit how low the price could fall.
For that reason, Wells Fargo’s Reeder upgraded the stock to the equivalent of a hold rating, saying much of the risk was mitigated by this week’s steep drop. “The precise downside from here is less clear, as, at a minimum, we believe the bank has value,” Reeder wrote.
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Source: Yahoo! Finance
