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Honeywell (HON) Displays Bright Prospects, Headwinds Persist

Zacks Equity Research
·3 min read

On Sep 24, we issued an updated research report on Honeywell International Inc. HON.

In the past three months, this Zacks Rank #3 (Hold) stock has returned 11.4% compared with the industry’s growth of 9.9%.

Present Scenario

Honeywell stands to benefit from strength across its defense and space businesses, driven by strong backlog and healthy defense budget allocated to the U.S. Department of Defense. Going forward, solid demand for its warehouse automation products, personal protective equipment and medical sensors along with strong backlog conversion rate will act as tailwinds for the company. In addition, its building solutions and safety products businesses are likely to witness growth opportunities in the long run.

Also, several cost-control measures taken by the company, including the reduction of discretionary expenses, a hiring freeze and repositioning actions enabled it to reduce costs by about $700 million year over year in the first half of 2020. In the quarters ahead, these measures along with commercial and operational excellence initiatives are expected to help it to maintain a healthy margin performance amid the coronavirus crisis.

In addition, it remains committed to rewarding shareholders handsomely through dividend payments and share buybacks. In the first half of 2020, the company used $1,285 million for paying out dividends, and repurchasing shares worth $1,985 million. Notably, the quarterly dividend rate was hiked by 10% in September 2019.

However, low global air transport flight hours, on account of the coronavirus outbreak-led issues, will continue to affect the company’s commercial aftermarket business. Also, its performance is likely to be affected by volatile oil market, weak oil and gas capital expenditure, weakness in its UOP business and automation project delays in process solutions business. In addition, softness in its productivity products, IoT and gas sensing businesses persists.

Moreover, its high-debt profile poses a concern. For instance, in the last five years (2015-2019), its long-term debt rose 14.9% (CAGR). The metric was $17,591 million at the end of the second quarter of 2020, reflecting an increase of 52.4% sequentially. Its cash and cash equivalents of $13,778 million were not sufficient to meet its obligations. Further increase in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks from the same space are Griffon Corporation GFF, HC2 Holdings, Inc. HCHC and Danaher Corporation DHR. While Griffon sports a Zacks Rank #1 (Strong Buy), HC2 Holdings and Danaher carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Griffon delivered a positive earnings surprise of 117.00%, on average, in the trailing four quarters.

HC2 Holdings delivered a positive earnings surprise of 41.91%, on average, in the trailing four quarters.

Danaher delivered a positive earnings surprise of 10.83%, on average, in the trailing four quarters.

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Honeywell International Inc. (HON) : Free Stock Analysis Report
 
Danaher Corporation (DHR) : Free Stock Analysis Report
 
HC2 Holdings, Inc. (HCHC) : Free Stock Analysis Report
 
Griffon Corporation (GFF) : Free Stock Analysis Report
 
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Zacks Investment Research