Stock Overview: Hawaiian Electric Industries, Inc. (NYSE: HE)

Hawaiian Electric is a utilities company that serves the Hawaiian Islands. Currently, HE is trading at $44.35. Here are a few things that investors should be paying attention to:

Fiscal Year 2019 is the first year that HE has raised dividends since 1998 despite its share price growing approximately 140% since then.

  • It is a highly defensive stock with a beta of 0.17 (3Y monthly) as of today.

  • It has a payout ratio of about 67.4%.

  • The forward dividend yield for FY2019 is projected to be 2.92%.

  • The company has made every dividend payment since at least 1990 (you can see its dividend history here)

The company has been in business since 1891 and has a strong hold on the market in which it operates. Despite the lack of pressure from competition, HE has continued to innovate and invest in Hawaii's grid. Although there isn't much dividend growth and the yield is modest, Hawaiian Electric should not be written off by value investors looking for a safe investment to round out their portfolios. This stock also has a unique value proposition for growth investors searching for hedges.

Rating: BUY

Disney's Relative Value

Disney's Economic Moat & Market Position
An “economic moat” is essentially a company's protection from competitors and disruptors in the form of competitive advantages. These moats can range from access to capital to proprietary technology. Warren Buffett, the creator of this idea, states the following in relation to it:

“We are trying to figure out what is keeping — why is that castle still standing? And what's going to keep it standing or cause it not to be standing five, 10, 20 years from now. What are the key factors? And how permanent are they? How much do they depend on the genius of the lord in the castle?(1)”

Analysts at Morningstar view Disney's various brands as an enormous economic moat which shields the company from most short-term market changes.(2) Competitors may or may not find opportunities to weaken Disney's revenue streams. However, it would be a daunting, near impossible feat for a competitor to undermine Disney's entire brand awareness in the short-term.

Despite operating in an industry which is currently facing disruption at the hands of streaming companies and services such as Netflix (NYSE: NFLX), Hulu, Amazon Prime (NYSE: AMZN), and YouTube (NYSE: GOOGL), analysts such as Neil Macker from Morningstar remain optimistic about Disney's market position.(2) This is due to key network segments (such as ESPN), impenetrable brand loyalty, strategic acquisitions (such as Lucasfilm and Marvel), and a transition into OTT services.

OTT (Over the Top) is essentially another way to say “streaming services”. Skeptics about the market position of Disney often cite the rise of such services as being the industry which will ultimately de-throne Disney. However, proponents of Disney's superior market position claim that the consumer's emotional connection to the company's brands means that Disney is here to stay. Additionally, Disney has already begun to move into this new “OTT” industry and proponents claim that its brand power (or economic moat) provides Disney with all the time it needs to make an effective transition.

Recommendation
As of March 3, 2019, The Walt Disney Company's stock was trading at $114 while analysts at Morningstar had it's “Fair Value Estimate” at $135.2 For investors, this means that shares are currently trading at approximately 18.4 percent less than their intrinsic value. Additionally, as of just last week various analysts had the company's average 12-month target price at $126.55.(3) This would mean over an 11 percent return if the target price were to be hit.

Out of the following options: strong buy, buy, weak buy, weak sell, sell, and strong sell, Disney is a “buy”. All forecasts and predictions point towards healthy growth for Disney's stock price for the foreseeable future and its economic moat provides a safety net so that there is enough time to sell if the market begins to indicate a decline in growth.

When considering whether the stock is a “sell” or a “buy”, one might want to consider the following six indicators: Price to Book Ratio, Price to Earnings Ratio, PEG Ratio, Price to Free Cash Flow Ratio, Price to Sales Ratio, and Dividend Yield. Compared to the overall industry, Disney's Price to Book and Price to Earnings ratios are below average. However, these ratios still fall within a comfortable zone for investors. Each of the other four indicators perform above industry average with the dividend yield being the furthest above industry average. This is an excellent indicator to be performing well from the perspective of an investor as it directly contributes to an investor's expected return.

On the other hand, when determining the strength of the buy recommendation, it's necessary to look at a few other indicators to try to predict where the company may be headed and how it is currently being run. The specific indicators which eliminate the possibility of the stock being a strong buy are sales growth and net income growth (which indicate how the company has been growing and how it might continue to grow) as well as the current ratio, quick ratio, and cash ratio (which determine how liquid the company's assets are). These two groups of indicators are commonly placed into categories of indicators referred to as growth ratios and liquidity ratios, respectively.

The most recent figures for Disney as well as the overarching industry show that, for these five indicators, Disney is performing both below average for the industry and less than desirable overall.(3) This lack of growth as well as lack of liquidity shouldn't be ignored by investors. If the industry continues to grow at the same rate, Disney's market share will inevitably begin to decline eventually as other companies within the industry continue to outpace them. Additionally, a lack of liquidity could pose huge problems for Disney if the economy enters a bear market despite its economic moat of brand recognition.

Regardless of those negative points, every other financial indicator suggests that Disney is in a healthy position and is poised to succeed. Its recent strategic decisions as well as its recent differentiation might also turn these negative points around. Disney has recently made two relatively large acquisitions of Lucasfilm and Marvel. This move serves to help Disney appeal to a broader consumer base, expand its brand recognition over a larger demographic, and purchase franchises which should pay dividends for years to come. In addition to these moves, Disney has begun to offer its products through third-party streaming services while it has been developing its own service.

For these reasons, it is recommended that one would buy Disney equity rather than sell it. This recommendation is made with a bit of caution due to the aforementioned growth and liquidity ratios but also with confidence due to its economic moat.

ENDNOTES
(1) Kim, T. (2018, May 07). Warren Buffett believes this is 'the most important thing' to find in a business. Retrieved March 5, 2019, from https://www.cnbc.com/2018/05/07/warrenbuffett-believes-this-is-the-most-important-thing-to-find-in-a-business.html

(2) Macker, N. (2019, February 05). Disney's Near-Term Focus Centered on Direct-to-Consumer and Fox. Retrieved March 5, 2019, from http://library.morningstar.com.byui.idm.oclc.org/stock/analystreport?t=DIS®ion=usa&culture=en-US

(3) Bloomberg L.P. DIS US EQUITY. 01/31/1999 to 01/31/19. Bloomberg terminal, 05 March 2019.

How to Develop Mental Toughness in One Easy Step

Before I reveal to you the magic secret to becoming mentally “tough”, let me describe to you what exactly mental toughness is. You may hear different people defining the concept in different ways. Some would call it synonymous with words such as “strength” or “tenacity” others might define it as “the never-ceasing ability to persevere”.

These statements definitely describe the concept on a micro-level; however, in a bigger sense, it can be summed up as meaning “emotional endurance”. Everyone is capable of seeing a legitimate obstacle standing between them and their desired objectives (such as the amount of time one needs to workout in order to look the way they would like or even the competitive nature of their dream job).

What many people fail to see is the bigger obstacle standing between them and their goals: the way they feel about overcoming these obstacles. It always seems easier to experience good feelings in the moment than it is to delay that gratification for greater returns. It is easier. However, harnessing your emotions for what you know is the better choice will be your defining factor.

Muhammad Ali said it best:

“I hated every minute of training, but I said “Don't quit. Suffer now and live the rest of your life as a champion.”

I'll stop leading you all on now.

Step 1 for Developing Mental Toughness:

- Do hard things.
It's such a simple truth, it almost sounds paradoxical, doesn't it? You might be asking “How can I develop the mental toughness to do hard things if I have to do hard things in order to develop it?”

Start small, do things you don't want to do and gradually progress into harder and harder things. Start by making your bed if you need to, before you know it you could have the emotional endurance to swim oceans. (Maybe not, but I guarantee you’ll be an immensely more capable person).

“To build mental toughness, you have to inconvenience yourself. The early morning runs if you hate early morning runs, the late night runs if you hate late night runs, the snowy, cold, the worst conditions you can get, put yourself in those conditions and really make it inconvenient, and you start to get a genuine expectation of winning for the price you had to pay.” -Chael Sonnen