The last few days have not been good ones for Hawaii in general, and for Hawaii’s leading utility, Hawaiian Electric (NYSE:HE) in particular. In fact, Hawaiian Electric lost over 9% in Tuesday’s trading, thanks to two main factors: its bond rating, and the ongoing wildfire disaster in Maui.
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The first major hit to Hawaiian Electric, which is more closely related to the second than you might think, was S&P downgrading Hawaiian Electric’s bond rating to BB-, or basically, junk bond status. S&P also put Hawaiian Electric and its various subsidiaries on CreditWatch, complete with negative outlooks, and also pulled both the commercial and short-term ratings down to a B. Shahriar Pourreza, analyst with Guggenheim, also offered some explanation on what’s hitting Hawaiian Electric’s credit rating. The major issue is a “short-term liquidity crunch,” with banks not especially eager to lend to a company that basically needs to rebuild its operations and will be unable to pay loans until it has rebuilt. With a dividend date coming up, that may be a bigger problem than expected.
That brings us to the second issue: the very real possibility that Hawaiian Electric may have had a hand in the wildfire to begin with. Reports suggest that Hawaiian Electric didn’t turn off the power ahead of the storms that brought dry, gusty winds and a likely chance of line breakage. It’s unclear just how much of the blame should go on Hawaiian Electric, especially since its choice was to shut off power for no reason in a storm, or potentially be branded a part of the problem. It’s similar to what happened to PG&E (NYSE:PCG) in California during some of their wildfires.
Analysts don’t hold out much hope for Hawaiian Electric either. With two Hold ratings and two Sell, Hawaiian Electric stock is considered a Moderate Sell. However, with an average price target of $26.75, Hawaiian Electric comes with a substantial upside potential of 39.18%.
