Going forward, the Hawaiian Electric Industries, Inc. (HE) story looks promising with stable earnings from regulated electric operations, new plant installations, focus on renewable energy and growing banking operations which witnessed higher net interest margin and strong growth in core deposits.
However, a forecasted rise in O&M expenses in the latter-half of 2008, a volatile interest rate environment, a weakening Hawaiian economy and uncertainties prevailing over the sustainable strength of the Japanese economy collectively continue to weigh on the stock's valuation.
Accordingly, with a mixed outlook, we maintain a market-neutral Hold recommendation on HE common stock with a six-month target price of $25.75. Price appreciation to our near-term valuation target, coupled with the $0.31 per share quarterly cash dividend, which we deem sustainable, represents an annualized total return potential of 14.2%.
However, the prospects at Hawaiian Electric appear bright, given the company's stable earnings generated by its regulated electric operations, in addition to the growing contribution from banking services. The company's banking subsidiary benefits from an improving Hawaiian economy, due primarily to an improving real estate market, strong construction activity, long-term infrastructure investments by the military and a local tourism industry approaching historic levels.
Read the full analyst report on HE
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