What Will Drive Honeywell’s Near Term Growth?

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 great results. The conglomerate easily surpassed both the sales and earnings estimates expected by analysts in the quarter, representing the ninth consecutive quarter to achieve this feat.

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 yet again. The company now expects organic sales growth between 5-6%, segment margin expansion of 40-60 basis points, earnings between $8.05-$8.15 per share, and free cash flows between $5.6-$6.2 billion. We expect this positive momentum to continue well into 2019.

We have created an interactive dashboard What Is The Outlook For HON on the company’s expected performance in 2019. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues and earnings.

After many tough quarters at the segment, things seem to finally be turning around at aerospace. On an organic basis, in the latest quarter, revenues at aerospace grew by almost 10%. 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.

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, and beyond, if oil prices continue to remain on an upward trajectory.

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 rise 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, which could see the top line jump in the near term.

Overall, it seems as though the conglomerate is on the right path. With higher demand for its products, a bettering economy, rising e-commerce dependence, and increased oil prices, we expect the company to produce strong financials in the near term.