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Here's Why Investing in Honeywell (HON) Now Makes Sense

Zacks Equity Research

Honeywell International Inc. HON has impressed investors with its recent earnings streak, having surpassed estimates all through in the four trailing quarters, with a positive average earnings surprise of 3.50%.

Over the past three months, the company has gained 12.2%, outperforming the industry’s growth of 1.6%.The company’s share price increase reflects its impressive performance, exhibiting investor optimism over the stock.

The stock currently carries a Zacks Rank #2 (Buy).We believe that its notable traction across markets will drive growth in the upcoming quarters.

Factors to Consider

Honeywell is well poised to gain from robust global demand for sensors, guidance systems, original equipment shipment volumes and higher spares volumes. Also, strong demand for commercial fire and security products, particularly in India and China, is likely to drive revenues of the company’s Building Technologies segment. Further, it believes that solid demand for its warehouse automation, sensing and IoT businesses will boost Safety and Productivity Solutions’ revenues.

Moving ahead, Honeywell expects that its profitability will be driven by greater operational excellence and share buyback programs. For 2019, the company anticipates earnings in the range of $7.90-$8.15 per share compared with $7.80-$8.10 guided earlier.

Also, the company has progressed with its portfolio transformation strategy, having declared spin-off dividends of shares of Resideo. Honeywell has also completed the divestment of Garrett Motion Inc. In 2018, the company reorganized its operating segments by divesting Transportation Systems business and the Homes and ADI Global Distribution business. In addition, it acquired the German company — Transnorm — in November 2018. These initiatives will help it concentrate on high-growth industrial businesses, which will boost sales.

Moreover, the company’s cash position is impressive, as evident from 55% year-over-year increase in cash flow from in first-quarter 2019. Also, for 2019, it expects to generate strong cash flow of $6 billion.

In addition, analysts have become increasingly bullish on Honeywell. In the past couple of months, the Zacks Consensus Estimate for both 2018 and 2019 earnings has trended up.

Other Key Picks

Some other top-ranked stocks in the same space are Federal Signal Corporation FSS, ITT Inc. ITT and Crane Company CR. All these stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Federal Signal pulled off average positive earnings surprise of 21.75% in the trailing four quarters.

ITT delivered positive average earnings surprise of 7.02% in the trailing four quarters.

Crane pulled off average positive earnings surprise of 6.74% in the trailing four quarters.

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