Key Reasons to Hold on to Honeywell (HON) Stock for Now
Honeywell International Inc. HON is gaining from strength in the commercial aerospace, process solutions and UOP businesses, solid operational execution and improving supply chains despite headwinds from cost inflation and weakness in the Safety and Productivity Solutions segment.
What’s Aiding the Stock?
Business Strength: Strong commercial aftermarket demand owing to a recovery in commercial flight hours is aiding Honeywell’s Aerospace segment. With improvement in supply chains and strength in the order book, this Zacks Rank #3 (Hold) company expects organic sales to increase in low-double digits for the Aerospace segment in 2023.
Strength in process solutions and UOP operations is fueling growth of the Performance Materials and Technologies (PMT) segment. Growth in smart energy, projects and lifecycle solutions and services within process solutions and robust demand for petrochemical and refining catalysts within UOP are expected to drive the segment’s performance. The company expects high single-digit organic growth for the unit in 2023.
Honeywell International Inc. Price and Consensus
Honeywell International Inc. price-consensus-chart | Honeywell International Inc. Quote
With strength across its business, HON’s bullish guidance for 2023 holds promise. For 2023, the company expects sales of $36.7-$37.3 billion compared with $36.5-$37.3 billion anticipated earlier. The company expects organic sales growth of 4-6% in the year compared with 3-6% estimated earlier. Honeywell expects adjusted earnings per share of $9.05-$9.25, suggesting a year-over-year rise of 3-6%.
Healthy Margin Performance: Despite cost inflation, pricing actions and cost-control measures are driving Honeywell’s margin performance. For the second quarter of 2023, operating margin expanded 270 basis points (bps) year over year to 20.6%. Segment margin expanded 150 bps in the quarter. For 2023, the company expects segment margin of 22.4-22.6%, indicating a year-over-year rise of 70-90 bps (an increase of 60-90 bps was anticipated earlier).
Expansion Initiatives: Honeywell has been strengthening its business through acquisitions. Recently, the company completed the acquisition of Compressor Controls Corporation from INDICOR, LLC. The acquisition fortifies 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 is part of HON’s Process Solutions business within PMT.
In July, HON acquired SCADAfence, a provider of operational technology (OT) and Internet of Things cybersecurity solutions. The acquisition has expanded Honeywell's OT cybersecurity portfolio in Tel Aviv, Israel, while simultaneously fortifying its existing capabilities in cybersecurity, offering customers enhanced security, reliability and efficiency. SCADAfence will be integrated into the Honeywell Forge Cybersecurity+ suite within Honeywell Connected Enterprise.
In June, HON inked a deal to acquire the heads-up-display assets of Saab Technology, a Swedish aerospace and defense company. The acquisition, subject to customary closing conditions, will boost Honeywell’s end-to-end avionics and safety offerings.
Rewards to Shareholders: Honeywell has been committed to rewarding its shareholders handsomely through dividends and share buybacks. In the first six months of 2023, HON paid dividends of $1.42 billion and bought back shares worth $1.18 billion. In 2022, Honeywell paid $2.7 billion in dividends and bought back shares worth $4.2 billion. The quarterly dividend rate was hiked by 5.1% in September 2022, marking its 13th increment since 2010. Strong free cash flow generation supports the company’s shareholder-friendly activities. In the second quarter, free cash flow was $1.13 billion compared with $843 million in the year-ago period. The company expects free cash flow of $3.9-$4.3 billion for 2023.
Key Picks
Below we discuss some better-ranked industrial stocks:
Flowserve Corporation FLS presently sports a Zacks Rank #1 (Strong Buy). The company pulled off a trailing four-quarter earnings surprise of 6.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks.
Flowserve has an estimated earnings growth rate of 79.1% for the current year. The stock has jumped 29% so far this year.
Graham Corporation GHM currently flaunts a Zacks Rank #1. The company pulled off a trailing four-quarter earnings surprise of 243.1%, on average.
Graham has an estimated earnings growth rate of 400% for the current fiscal year. The stock has rallied 66% so far this year.
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