Shares of Hawaiian Electric Industries(NYSE: HE) plunged on Friday, with shares down 17.1% on the day.
Hawaiian Electric's shares were down following last night's third-quarter earnings report and update. While the company actually beat expectations on its top and bottom lines, the utility is still dealing with the fallout of this past summer's tragic wildfires. In conjunction with multiple lawsuits and payments that need to be made to a state fund for victims, the company said it would delay its financial statements.
Third-quarter results beat, but the future is uncertain
In the third quarter, Hawaiian Electric saw revenue of $901.9 million, down 13.5% from the prior year, while adjusted (non-GAAP) earnings per share came in at $0.56, down by about two-thirds from the year-ago quarter. While both of those figures saw significant year-over-year declines, they actually came in ahead of analyst estimates.
So, why were shares down so much? Well, the company is still reeling from its potential liability in this summer's wildfire, which was the fifth-deadliest wildfire in U.S. history. In the aftermath, it was found Hawaiian Electric may have some culpability and therefore liability for the tragedy, and the stock plunged by about 75% in the immediate aftermath.
While the stock had slightly recovered through October, new revelations on the earnings release sent shares back down to just above yearly lows today. Management said the company would be unable to file its SEC quarterly report in a timely manner, due to a new payment it is expected to have to make toward a new state $150 million fund to compensate victims of the fire. Of the $150 million fund, Hawaiian Electric will have to provide $75 million. The stock's market cap is now just under $1.3 billion, so that $75 million payment alone accounts for about 6% of Hawaiian Electric's equity value, adding to today's plunge.
However, the company is also a defendant in another 64 lawsuits, and this payment will not resolve those ongoing cases. So, it's possible that there could be more liabilities or settlements forthcoming, and those amounts are unknown.
Too much uncertainty despite a low stock price
Deep-value investors may want to look at Hawaiian Electric as a turnaround play, but for most, there is probably far too much uncertainty and work involved with sorting out all of the risks. Not only will Hawaiian Electric have to make these payments and deal with lawsuits, but it will likely also have to invest in new measures to prevent something like this from happening again.
On Friday, the company announced it was advancing another $190 million toward grid resilience and was in discussion with the state government about new procedures. Those could add more costs as well.
All in all, it's probably best for investors to take a wait-and-see approach to see if Hawaiian Electric makes it through this difficult period before thinking about investing in the company. More financial surprises could be in the cards.
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Billy Duberstein has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
