Here's Why You Should Hold on to Honeywell (HON) Stock Now
Honeywell International HON is backed by multiple tailwinds despite supply chain issues and raw material cost inflation. Persistent weakness in the Safety and Productivity Solutions segment due to lower warehouse and workflow and productivity solutions volumes has been a drag on this Zacks Rank #3 (Hold) company’s operations. However, continued momentum in the Aerospace and Performance Materials and Technologies segments has largely offset the softness associated with the Safety and Productivity Solutions segment.
Key Factors Likely to Aid HON
End-Market Strength & Pricing Actions: Strength in the cyber, industrial, aerospace and connected building end markets and solid operational execution augur well for HON’s growth. Despite cost inflation, pricing actions and cost-control measures are driving the company’s margin performance. For the first quarter of 2023, operating margin expanded 390 basis points (bps) to 19.1%. Segment margin expanded 90 bps in the quarter. For 2023, the company expects segment margin of 22.3%-22.6%, indicating a year-over-year rise of 60-90 bps (an increase of 50-90 bps was anticipated earlier).
Amid a stable demand environment across its key end markets, Honeywell has provided bullish guidance for 2023. The company expects sales of $36.5-$37.3 billion for the current year compared with $36-$37 billion anticipated earlier. The company expects organic sales growth of 3-6% in the year compared with 2-5% estimated earlier. HON expects adjusted earnings per share of $9-9.25, suggesting a year-over-year rise of 3-6% (an increase of 0-5% was predicted earlier).
Honeywell International Inc. Price and Consensus
Honeywell International Inc. price-consensus-chart | Honeywell International Inc. Quote
Robust Performance Across Most Segments: Strong commercial aftermarket demand owing to a recovery in commercial flight hours is aiding Honeywell’s Aerospace segment. While supply chain issues persist, the situation has improved substantially. Thanks to this improvement in supply chains and strength in the order book, the company expects organic sales to increase in low double digits for the Aerospace segment in 2023.
Strong demand for flooring products, gas processing equipment and sustainable technology solutions is expected to drive the Performance Materials and Technologies segment’s growth in 2023. The company expects strength in projects and smart energy businesses to support the segment’s growth in 2023. It expects sales to increase in mid-single digits for the segment in 2023.
Growth in Building Products and Solutions augurs well for the Building Technologies segment. Institutional demand in airports, healthcare and education is expected to drive growth of the segment in 2023. HON expects organic revenues to increase in the low single digits for the segment in the current year.
Sound Financial Health: Honeywell’s sound financial health allows the company to effectively utilize its free cash flow to acquire assets, repurchase shares and pay dividends. In 2022, HON rewarded shareholders with $2.7 billion in dividends and $4.2 billion in share buybacks. The quarterly dividend rate was hiked by 5.1% in September 2022, marking its 13th increment since 2010. In the first quarter of 2023, the company paid dividends of $725 million and repurchased shares worth approximately $800 million. The company expects an operating cash flow of $4.9-$5.3 billion for 2023, while free cash flow is anticipated to be $3.9-$4.3 billion.
Deal to Acquire Compressor Controls Corporation: Honeywell aims to strengthen its business through acquisitions. In April, HON entered into an agreement to acquire Compressor Controls Corporation from INDICOR, LLC. The acquisition will fortify HON’s expertise in industrial control, automation and process solutions while simultaneously bolstering its sustainability portfolio with new carbon capture control solutions. The acquired entity will be integrated into HON’s Process Solutions business. The deal is expected to close in the second half of 2023.
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