Why We Revised Our Price For Honeywell Upward

by Trefis Team
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Honeywell International (NYSE: HON) in the recent past has performed exceptionally well, catching the eye of many on Wall Street. In keeping with this trend, in the most recently quarter, the company posted rather stellar results. The conglomerate easily surpassed both the sales and earnings estimates expected by analysts in the quarter. In general, the top line improved greatly on a strong performance at aerospace. This improved performance consequently gave the company enough confidence to raise its earnings guidance for a second time this year.

The industrial giant expects 2018 profit of $7.85 to $8.05 per share, compared with a previous forecast of $7.75-$8.00, while revenues come in around $42.7 billion-$43.5 billion, from the previously forecast $41.8 billion-$42.5 billion. In this respect, we have decided to increase our price estimate for Honeywell to come in around $140.

Contributing Factors

  • Aerospace Bounces Back: After many tough quarters at the segment, things seem to finally be turning around at the aerospace business. On an organic basis, in the latest quarter, revenues at aerospace grew by almost 8%. In general, it benefited from continuing strong demand for commercial jet components; the steady increase in global air traffic has enabled both Boeing and Airbus to capitalize on their healthy backlogs. Further, management also mentioned that there are signs of recovery in demand for business jets as well. Additionally, we expect the segment to also benefit from loftier aftermarket sales as airplanes employed at many airlines reach the end of their flying journey.
  • Increasing Oil Prices Set To Be A Boon: Honeywell also seems to be benefiting from increasing demand from oil and gas customers as oil prices continue to improve. Since about $50 a barrel in May last year, oil prices have jumped to around $70 a barrel at present. In this respect, the company’s UOP business is expected to see healthy gains in the year. Going forward, we can expect to see increased demand through the year if oil prices continue to remain on an upward trajectory.
  • Rise In E-commerce To Benefit The Automation Industry: According to the National Retail Federation, e-commerce is expected to grow by around 8-12% this year, which is more than double the overall increase for all retail. This is a staggering growth rate that is expected to grow at a similar rate over the next few years, at least. Such growth is expected to greatly benefit the company’s supply chain and warehouse automation equipment and software business.
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