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Hawaiian Elec. Prices Share Offering

Zacks Equity Research

In order to increase its liquidity, Hawaiian Electric Industries Inc. (HE) or HEI priced an underwritten public offering of 6.1 million shares at $26.75 each. The company will provide an option to the underwriters for purchasing an additional 0.9 million shares solely to cover any over-allotments.

J.P. Morgan Securities LLC, a unit of J.P. Morgan Chase & Co. (JPM) and Morgan Stanley & Co. LLC, a unit of Morgan Stanley (MS) are acting as joint book-running managers for the offering.

HEI intends to use the net proceeds for investment in its utility subsidiaries’ capital expenditures, to repay borrowings incurred to finance capital expenditures and for working capital purposes.

The offering is being made under HEI's existing shelf registration statement filed with the Securities and Exchange Commission, which became automatically effective on Nov 4, 2011.

Honolulu, Hawaii-based Hawaiian Electric Industries was founded in 1891. The company along with its subsidiaries provides electricity and banking services in Hawaii. The company mainly utilizes renewable energy sources to produce electricity. The company's market capitalization is $2.7 billion.

HEI supplies power to approximately 450,000 customers or 95% of Hawaii's population through its electric utilities, HECO, Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited and provides a wide array of banking and other financial services to consumers and businesses through American Savings Bank, F.S.B., one of Hawaii's largest financial institutions.

The tourism industry in Hawaii is recovering on the back of an economic recovery in the U.S. and Japan. These two countries generate the largest number of tourists to Hawaii. This is also reflected in Hawaii’s state visitor arrival. State visitor expenditures also continued to grow. Hotel occupancies and room rates remain higher year over year. Finally, Hawaii’s construction industry is also showing signs of recovery with a rising trend of public contracts for new commercial and industrial building permits.

Hawaiian Electric is progressing smoothly to comply with the Hawaii Clean Energy Initiative (HCEID), which calls for generating 70% of its energy needs from renewable sources by 2030. The Hawaii Public Utilities Commission (:PUC) is also supportive of the company’s focus to reduce its dependence on imported fossil fuels by substantially increasing the use of renewable energy. The company plans to spend approximately $3 billion over the five-year period ending in 2016 for capital expansion programs with a distinct focus on renewable energy projects. Of the projected $3 billion of capital expenditures, approximately 39% are targeted for environmental compliance, infrastructure investments for fuel and to integrate renewable sources into the system; 38% are earmarked for transmission and distribution projects; 13% for generation projects; and 10% for maintenance.

Along with long-term expected earnings growth of 6.4%, this Zacks Rank #3 (Hold) stock also offers a solid dividend yield of 4.6%. The company has been paying stable and consistent dividends since 1901, which adds to the attractiveness of its shares. Going forward, we believe the company is well positioned to continue to deliver attractive earnings growth with reduced risk and volatility cumulating in an above-average dividend yield.

In the near term, we are more positive about Brookfield Infrastructure Partners L.P. (BIP), which carries a Zacks Rank #1 (Strong Buy).

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