Hawaiian Electric Company Needs Careful Analysis - In Danger Zone
This one from Wall Street Sector Selector says that HECO stock is headed to $14 a share, just like Off Wall Street, and for good reasons:
1) Low Profitability - HE has grown after-tax profit (NOPAT) by less than 1% compounded annually over the past 11 years. More troubling, however, is the fact that HE’s invested capital has grown by 5% compounded annually over the same time.
HE’s free cash flow has been negative in five out of the past seven years.
2) Misleading Accounting Earnings - In other words, it is fudging the numbers to make itself look much better than it really is.
3) Solar poses a big threat
4) Over the top valuation - HE’s steadily maintained 5% dividend has kept the stock overvalued in the face of declining fundamentals as investors chase yield without paying close attention to significant earnings and balance sheet red flags.
Even if HE can fight off competition from solar and grow along with the state, 2% NOPAT growth for the next 15 years only yields a fair value of ~$14/share.
With $2.5 billion in debt, underfund pensions, and deferred tax liabilities, HE can’t keep supporting its dividend through swelling debt, deposit liabilities and questionable pension accounting. Meanwhile, the company’s already negative free cash flow should decline even further.....
5) Bottom line - HE has enjoyed monopoly status in Hawaii for a long time, but solar power is disrupting its business model, and HE doesn’t appear to have a solid plan to adapt. Investors need to look past the yield and dig into the fundamentals, which clearly don’t support the current valuation. To paraphrase Benjamin Franklin, he who would give up due diligence for a high dividend deserves neither.
What rising interest rate? The one we have been waiting for from the Fed for how long? Do you really think the Fed wants a market correction? They are not as independent as you think. The chairman is a political appointee of the Pres. Do you really think they want the political fallout from Wall Street and investors also know as political donations. Let's suppose they were to raise rates. What token minuscule increment would it be? Enough to negate the dividend on HE? Guess what if rates go up the entire stock market will correct not just HE. More likely there will be a non rate related correction where investors then rotate into safe income producing stocks like utilities. I suggest that you read other analysts reports which I have and sound a lot more credible than this suspicious article initiated to support short positions. 14$ per share? What the hell are they smoking?
Surprise, surprise....another misrepresentation direct from the bottom of the barrel. Wall Street Sector Selector does not say that HE is headed to $14. They carried an article from David Trainer who wrote it on his blog. This was not an unbiased report from a stock analyst but a hit piece from a short seller. Here is the disclosure at the end of the article:
Disclosure: David Trainer may initiate a short position in HE in the next 72 hours. David Trainer and Sam McBride receive no compensation to write about any specific stock, sector or theme.