Is Hawaiian Electric Industries (HE) Emerging as a High-Conviction Value Play in the Utility Sector?

Hawaiian Electric Industries (HEI) has long been a utility sector enigma—haunted by the catastrophic 2023 Maui wildfires yet poised for a transformative turnaround. The interplay of operational efficiency gains, regulatory breakthroughs, and wildfire liability resolution now positions HEI as a compelling high-conviction value play. For investors, the question is no longer whether HEI can recover, but how swiftly and profitably it can capitalize on its strategic repositioning.

Operational Efficiency: A Foundation for Resilience

HEI's recent financial performance underscores its commitment to cost discipline and asset rationalization. The sale of American Savings Bank in April 2025, which reduced holding company debt by $384 million, exemplifies its focus on deleveraging. While the $13 million pre-tax loss from divesting Hamakua Energy (a Pacific Current subsidiary) temporarily dented earnings, it reflects a broader strategy to streamline non-core operations.

The core utility, Hawaiian Electric, reported a $48 million net income in Q1 2025, up from $39 million in Q1 2024, driven by higher revenues from regulatory mechanisms, improved heat rate performance, and lower O&M expenses. Excluding wildfire-related costs, Core net income reached $50 million, signaling robust underlying profitability. These metrics suggest HEI is not only stabilizing its operations but also laying the groundwork for sustainable margins.

Wildfire Liability Resolution: A Game-Changer

The $4 billion Maui wildfire settlement, structured as four annual payments starting mid-2025, is a watershed moment. By avoiding an admission of liability, HEI preserved its legal and reputational capital while securing financial clarity. Equally transformative is SB 897, which caps annual economic damages from future wildfires at $500 million—provided HEI adheres to a PUC-approved mitigation plan. This cap, combined with securitization authority for $500 million in wildfire safety investments, shifts wildfire risk from a liability to a rate-recoverable asset.

The financial implications are profound. HEI's liquidity position—$1.275 billion in cash and credit capacity—ensures it can fund the settlement without compromising operational investments. Credit upgrades from Moody's (HEI to Ba3, Hawaiian Electric to Ba2) further validate its improved credit profile. For investors, this resolution removes a major overhang, enabling HEI to redirect capital toward growth and resilience.

Capital Reallocation: Fueling a Resilience-Driven Growth Story

HEI's 2025–2027 capital expenditure plan ($350 million total, with $137 million in 2025) is a masterclass in strategic reinvestment. The focus on Maui County—where $180 million will be allocated—targets high-risk areas with undergrounding, covered conductors, and AI-driven wildfire monitoring. These projects align with SB 897's securitization framework, ensuring cost recovery through customer rates.

Key initiatives include:
- Undergrounding power lines in Lahaina (a pilot for future expansion).
- AI-assisted video cameras and weather stations for 100% coverage of high-risk zones.
- A Wildfire Watch Office staffed with a meteorologist for real-time risk management.

These investments not only mitigate future liabilities but also enhance grid reliability—a critical factor in Hawaii's push for 100% renewable energy by 2045. The federal grid resilience grant and the state's Wildfire Recovery Fund further de-risk capital outlays, ensuring long-term sustainability.

Regulatory Tailwinds and Investor Implications

The alignment of HEI's strategy with regulatory trends is a catalyst for multi-bagger potential. Performance-based regulation (PBR) rebasing in late 2025 will establish revenue targets for 2027–2031, incentivizing efficiency and innovation. Meanwhile, SB 897's approval by Governor Josh Green remains a critical near-term milestone. If enacted, it will accelerate capital deployment and reduce borrowing costs, amplifying HEI's ability to outperform peers.

For investors, the risk-reward asymmetry is compelling. HEI's debt reduction, liability resolution, and regulatory tailwinds create a low-risk environment for capital appreciation. The stock's current valuation—trading at a discount to its pre-wildfire ROACE targets—offers a margin of safety.

Conclusion: A High-Conviction Turnaround

Hawaiian Electric Industries is no longer a utility in crisis but a resilient player in the vanguard of climate adaptation. Its operational efficiency, wildfire liability resolution, and regulatory progress form a virtuous cycle: reduced risks free up capital, which is reinvested into resilience, driving long-term value.

Investment Advice: Position HEI as a core holding in a utility sector portfolio. Monitor SB 897's enactment and the PBR rebasing process for confirmation of regulatory support. A breakout above $25/share (current level as of August 2025) could signal a shift in market sentiment toward a multi-bagger narrative.

In a sector increasingly defined by climate risk and regulatory complexity, HEI's disciplined approach to liability management and capital allocation makes it a standout candidate for a high-conviction value play. The islands are watching—and so should investors.