Hawaiian Electric Industries enters its third-quarter report with an awkward contradiction. Over the past year the company has methodically removed the threats that once put its survival in question, including credit upgrades, a first wildfire settlement payment and a supportive regulatory calendar. Yet the stock has lost nearly a third of its value since the last report. With shares at $8.39, the question is no longer whether the balance sheet has stabilized. It is whether the earnings power left behind can justify owning the stock before 2027 rate relief arrives.
The practical bar is last year's third-quarter core EPS of $0.19. Matching it looks difficult given the trajectory management described in the second quarter, when core EPS fell to $0.13 from $0.20 and utility core net income slipped to $32.6 million from $42.5 million. That followed a similar decline in the first quarter. Revenue has been rising, reaching $939.7 million last quarter against $790.6 million in the year-ago third quarter, but much of that likely reflects pass-through dynamics rather than margin. Management has not reinstated earnings guidance, so there is no company range to measure against. That makes the composition of the quarter more telling than the headline figure.
The central operating issue is operations and maintenance expense. Management called 2026 a transition year and said O&M is running well above inflation. The drivers are vegetation management, generation overhauls, inspections, storm response, cyber and labor costs, and insurance premiums that can no longer be deferred. If third-quarter O&M growth moderates, that would support the view that 2026 is a trough. Another step up would suggest the cost base is resetting higher faster than rates can follow. Management has also guided to a net loss from performance incentive mechanisms for the year and to the maximum fuel cost risk-sharing penalty. Any widening of those penalties would erode confidence in execution. Higher interest expense from the September 2025 high-yield issuance, together with the loss of interest income after the $479 million settlement payment, adds a further structural drag.
The constructive side of the story lies in regulation, and this report should show whether it is staying on schedule. The PUC accepted the rebasing methodology and set an interim decision target of December 18 for January 1 rates, covering $125 million of a $170 million request in phase one. Confirmation that the procedural schedule remains intact would be the most valuable reassurance management could offer. Investors will also want an update on the financing order application under Act 258. That law allows roughly $350 million of wildfire mitigation capital to be recovered through lower-cost securitization, and management said it would file later in 2026. Progress on the state's largest competitive generation procurement, and on the $1.3 billion-plus transmission interconnection plan, would help sustain the pivot toward growth.
The newest overhang is the proposal for a competing regulated generation company, which has the governor's backing and an application expected in early 2027. Together with the PUC's pushback on an additional 500 MW of Oahu firm generation, it raises questions about how much of the future generation rate base HE will actually own. Any clearer framing from management of how it plans to respond would matter.
Sentiment has edged more bearish since the last report, and the stock trades far below its 200-day average of $13.19. It also sits within about 3% of its post-earnings low of $8.15, a sharp drop from last quarter's $12.34 to $14.90 range. That washed-out setup lowers the bar somewhat. The report ultimately hinges on one question: can management show that cost and penalty headwinds have peaked while rate relief stays on track for January? If it can, the transition-year narrative holds. If it cannot, the de-risking story risks becoming a story about permanently thinner returns.