Hawaiian Electric trades at 8.8x P/E, but wildfire risk clouds value case

Investing.com - Hawaiian Electric Industries (NYSE: HE) is trading at 8.78 times earnings, less than half the S&P 500 Utilities sector P/E of 19.54 as of August 31, 2026 — a discount that looks superficially compelling but masks a web of liability, liquidity, and regulatory risks that complicate any straightforward value thesis.

HE is the most direct equity expression of wildfire-exposed utility risk in the Pacific market. The Lahaina fire of August 2023, in which the company's power lines were implicated and more than 100 people died, continues to generate active litigation with no disclosed settlement reserve, making it impossible to know whether the low P/E reflects genuine undervaluation or a classic value trap.

Ben Graham's Margin of Safety framework demands more than a cheap earnings multiple. Graham required current ratios above 2.0 for industrial companies and adequate coverage of fixed charges. HE's balance sheet shows a current ratio of just 0.99, a quick ratio of 0.99, and a debt-to-equity ratio of 1.57 — thin buffers that would have given Graham significant pause. Without book value per share on hand to complete Graham's classic intrinsic value formula (22.5 × EPS × BVPS), a full Margin of Safety calculation remains incomplete, but the liquidity picture alone would likely disqualify HE from a classic Graham screen.

The Street is not calling this a buy. Consensus analyst sentiment is a "Reduce" rating with a price target of $11.88, barely above current levels near $11.40. StockInvest.us, in data as of August 28, rates HE a "Sell Candidate" with a technical score of -1.87 and a three-month trend forecast projecting a further 13.74% decline. The stock has already fallen 30.3% from a prior local high of $16.34, sits 7.32% lower year-to-date, and is near the bottom of its 52-week range of $10.79 to $17.38.

For those constructing a bull case, a partial P/E re-rating offers a quantified counterpoint to that 13.74% technical downside. If HE's multiple expands modestly from the current 8.78x to 9.75x — still less than half the sector benchmark and implying only a marginal improvement in litigation sentiment or rate-case clarity — the stock would price to approximately $12.65, representing upside of roughly 11% from current levels. That math is based on trailing EPS of approximately $1.30 (i.e., $11.40 current price divided by the 8.78x multiple), making the scenario reader-verifiable: 9.75 × ~$1.30 ≈ $12.65. That scenario requires no heroic assumptions about a full liability resolution, only a slight compression of the discount the market is currently applying for wildfire risk. Whether that compression materializes depends heavily on the two catalysts outlined below.

The sector backdrop adds another layer of caution. California utilities are facing elevated implied volatility heading into the end of Q3, with Mizuho downgrading Sempra Energy (NYSE: SRE) on August 31 after California's SB 492 failed to include a replenishment mechanism for the state wildfire fund. Mizuho cut its Sempra target from $104 to $84, citing preserved large financial exposure for utilities. While HE operates in Hawaii rather than California, the read-across on wildfire liability reform, and what happens when legislative relief fails to materialize, is a direct parallel investors cannot ignore.

Not everyone is stepping back. Institutional filings dated August 31 show Corient Private Wealth LP initiated a new position worth $6.71 million and Jefferies Financial Group purchased 87,900 shares. Those moves suggest some investors view current levels as an entry point, even as sell-side analysts stay cautious. That divergence, institutions buying while analysts rate it a reduce, is a classic tension in distressed value situations, and it does not resolve the underlying liability question.

On the operational side, Hawaiian Electric demonstrated meaningful execution strength last week. The company completed repairs to all major systems on Hawaii Island damaged by Hurricane Lala, which struck August 15-16 and left more than 65,700 customers without power with 91 mph wind gusts. Repairs finished one week ahead of schedule, with mutual-aid crews from Southern California Edison assisting. "With help from our California colleagues and support from our neighbor island teams across the company, we have been in the field and behind the scenes working night and day to safely help our communities," said Jim Alberts, Hawaiian Electric Senior Vice President and Chief Operations Officer, in a statement on the company's website. Operational resilience matters to regulators and courts, but it does not erase the financial liability overhang.

The company also faces a pending first major rate increase in five years, filed for 2026-2027, and the Hawaii legislature approved a $500 million infrastructure loan for wildfire risk reduction funded partly by a roughly $4 per month residential surcharge, per ElectricChoice.com data as of August 26. Rate relief would improve the earnings picture, but timing and magnitude remain uncertain. Notably, HE suspended its dividend following the Lahaina fire in 2023 and has not announced a timeline for reinstatement, a significant deterrent for income-oriented investors who typically anchor utility valuations partly on yield.

Two upcoming events are worth tracking closely. A Lahaina community meeting organized by the County of Maui is scheduled for September 2, 2026, and any developments around HE's role in grid reconstruction or the liability narrative could move the stock. More consequentially, HE's Q3 2026 earnings report is set for November 6, 2026, the next formal opportunity for management to update wildfire liability reserve disclosures, rate-case progress, and full-year guidance. If settlement negotiations advance before that date or the rate case moves faster than expected, the discount to sector P/E could compress quickly. If litigation costs escalate or the rate case stalls, the technical case for further downside has plenty of runway.

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