Morningstar | Hawaiian Electric Reports Solid Third-Quarter Results; ASB Continues To Outperform Our Expectations
We are raising our fair value estimate to $35 from $34 after Hawaiian Electric Industries reported solid 2018 third-quarter earnings due to the higher earned core return on equity at the utility with the resumption of triennial rate cases and the continued strength of American Savings Bank, or ASB. Our fair value estimate increase was due primarily to our increase in estimated earnings for ASB over the next five years and time-value appreciation.EPS in the third quarter were $0.60 versus $0.55 in the same period last year and Hawaiian Electric reaffirmed its full-year EPS guidance range of $1.80-$2.00 per share. The utility is now expected to earn near the bottom of the segment earnings guidance range of $1.33-$1.46 per share. The lower earnings guidance is due to higher O&M costs due in part to one-time items. In addition, IRS rules released in August allowed higher bonus depreciation, increasing cash flow, but have lowered the projected consolidated rate base for the utilities. Capital expenditures for 2018 are also now being guided to a lower level due to timing of projects.
Although the reduction in utility guidance was disappointing, the segment contributed $0.46 per share in the third quarter versus $0.44 in the same period last year. We still expect 2018 utility EPS contribution to be almost 14% higher than last year and grow another 10% in 2019 with the full-year benefit of triennial rate case implementation. The modest reduction in near-term earnings and rate base didn’t have a material impact on our fair value estimate.
ASB contributed $0.19 per share in the third quarter versus $0.16 in 2017. Management now believes ASB will contribute in the higher end of the previous EPS guidance range of $0.68-$0.74. We increased our estimate by $0.02, to $0.73 per share. We expect 2018 EPS contribution from ASB to be 20% higher than last year, establishing a new base, with 4% annual growth from the higher base.
Hawaiian Electric Industries is a holding company with its subsidiaries principally engaged in electric utility, banking, and renewable/sustainable infrastructure investment businesses operating in the State of Hawaii. The company and its operating utility subsidiaries, Hawaii Electric Light Company, Inc.and Maui Electric Company, Limited are regulated electric public utilities that provide essential electric service to Hawaii's population through the operation of five separate grids that serve communities on the islands of Oahu, Hawaii, and Maui, Lanai and Molokai. The company also owns ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B., a financial institution in the State of Hawaii.
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