Honeywell Stock: Everything General Electric Isn’t

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All industrial conglomerates are not created equal, clearly, and Bloomberg Businessweek has a smart story on how David Cote, who didn’t even make the final three in the race to succeed Jack Welch at General Electric (GE), has gone on to steer smaller rival Honeywell (HON) to superior results.

The two companies, of course, once agreed to merge and only abandoned the deal when European officials moved to block it. GE and Honeywell walked away from the combination October 2, 2001. Since then, GE stock essentially fell like a stone, and Honeywell shares tripled, as seen in a stock chart.

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GE Chart

GE’s market cap was in 2001 19 times that of Honeywell’s. Today, it’s not quite four times bigger than Honeywell’s market cap.

The companies aren’t directly comparable since GE operates a huge banking operation in addition to its industrial business. But on simple return on equity, Honeywell results improved vastly after the deal fell apart, and GE’s performance gradually deteriorated.

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HON Return on Equity Chart

The question for investors is whether Honeywell’s outperformance will continue, or whether GE will perhaps regain its momentum. After all, during Jack Welch’s tenure, GE led industrial companies in entering international markets and in driving productivity (he wasn’t known as Neutron Jack for nothing). But those gains don’t go on forever, and since Welch departed, other industrial companies have played catch up. GE stock is a little cheaper, its PE ratio at about 17 vs. nearly 20 for Honeywell.

GE’s dividend yield is bigger, 3.4% vs. about 2.2% at Honeywell. But Honeywell has the better record of increasing its dividend during the 10-plus years since the two companies abandoned their deal.

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HON Dividend Chart

Maybe Jeffrey Immelt, the executive who succeeded Welch, will himself be succeeded by someone who can find a strategy to revive GE’s momentum.

Jeff Bailey, The Editor of YCharts, is a former reporter, editor and columnist at the Wall Street Journal and New York Times. He can be reached at editor@ycharts.com.


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