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Growth & Income

Todd Bunton

Hawaiian Electric Industries, Inc.

HE

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Estimates have been rising for Hawaiian Electric Industries, Inc. (HE - Analyst Report) after the company delivered better than expected results for the third quarter of 2011. It is a Zacks #2 Rank (Buy) stock.

Based on consensus estimates, analysts project strong double-digit earnings growth for Hawaiian Electric over the next couple of years as it benefits from a rate relief and slowly improving Hawaiian economy.

The company also offers a dividend that yields a stellar 4.8%.

Company Description

Hawaiian Electric supplies power to over 400,000 customers or 95% of Hawaii's population through its electric utilities, Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited. It also provides banking and other financial services through ASB, but this represents only 8% of total revenues.

The company is headquartered in Honolulu, Hawaii and has a market cap of $2.5 billion.

Third Quarter Results

Hawaiian Electric delivered better than expected results for the third quarter of 2011. Earnings per share came in at 50 cents, beating the Zacks Consensus Estimate by 7 cents. It was a stellar 43% increase over the same quarter in 2010.

Revenue surged 28% year-over-year to $886 million, well ahead of the Zacks Consensus Estimate of $774 million. This increase was driven by a 32% jump in electric utility revenues, which benefited largely from a rate relief in all three jurisdictions.

Meanwhile, operating income jumped 30% year-over-year as the operating margin improved from 10.5% to 10.7%.

Outlook

Analysts increased their estimates for both 2011 and 2012 off the solid quarter, sending the stock to a Zacks #2 Rank (Buy).

Based on consensus estimates, analysts are projecting strong growth for Hawaiian Electric over the next couple of years. The Zacks Consensus Estimate for 2011 is $1.43, representing 18% growth over 2010 EPS. The 2012 consensus estimate is currently $1.72, corresponding with 20% EPS growth.

Not bad for a stodgy utility company. Continued benefits from the rate relief and a slowly improving Hawaiian economy should help move the bottom line over the next several quarters.

Dividend

But one of the most attractive features about Hawaiian Electric is its juicy 4.8% dividend yield. This is a lot better than the 2.0% yield you'd get on a 10-year Treasury note right now.

But don't expect the dividend to increase anytime soon. The company has held its quarterly dividend steady at 31 cents per share since 1998. And its dividend payout ratio is high at 93%. If it's able to continue growing EPS though, a dividend hike could be in the cards down the road.

Valuation

The valuation picture looks reasonable for HE. Shares trade at 15.0x 2012 EPS, in-line with the peer group and its 10-year historical median.

Its price to tangible book ratio of 1.7 is also in-line with the industry and a slight discount to its historical median of 1.8.

The Bottom Line

Investors looking for a steady and stable company amid an uncertain 2012 should consider Hawaiian Electric. The company offers earnings growth potential and a juicy 4.8% dividend yield at a reasonable price.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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