25% Upside For Honeywell’s Stock Possible Post COVID-19 Crisis?

by Trefis Team
+17.21%
Upside
149
Market
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Trefis
HON
Honeywell
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Honeywell International’s stock declined by about 27% between March 8, 2020, and March 24, 2020 (vs. a 18% decline in the S&P 500), and the stock is down over 30% since January 31, after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 26% decline in the S&P 500 since then).

Drawing lessons from the 2008 financial crisis, we see HON stock declined from levels of around $45 in October 2007 (the pre-crisis peak) to levels of around $21 in March 2009 (as the markets bottomed out), implying HON stock lost as much as 54% from its approximate pre-crisis peak. This marked a drop in-line with the broader S&P, which fell by as much as 51%.

Will Honeywell stock recover similarly from the coronavirus spread?

We compare the performance of Honeywell vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: Honeywell Stock Compared With S&P 500

  • In fact, Honeywell recovered strongly post the 2008 crisis, to levels of about $31 in early 2010, rising by 49% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.
  • Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 30% after Saudi Arabia increased production.

Rationale Behind Stock Decline

  • Industrial companies’ stocks generally move in tandem with the broader market trend and economic growth trends.
  • With rapid contraction of air travel, the company’s aerospace business is expected to take a hit, as the new orders could be postponed. Aerospace segment accounts for 40% of the company’s total sales.
  • The company’s safety products though are seeing high demand in the current crisis. The company has ramped up the production of N95 masks, among other protective gear.
  • Given the current crisis, the company is likely to face pressure on its top line in 2020, which explains the drop in the stock price.
  • We believe Honeywell’s Q1 and Q2 results will confirm this reality with a drop in revenues.
  • If signs of coronavirus containment aren’t clear by the Q1 earnings timeframe, it’s likely Honeywell’s stock, along with the broader market, is going to see continued drop when results confirm palpable reality.

Conclusion

While HON stock has declined due to the coronavirus and oil price war crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back strongly and potentially grow in-line with the broader markets, as the crisis winds down. Based on 2008 crisis comparison, HON stock could potentially see an upside of 25% post the current crisis.

What about timing?

Potential for 25% gains in HON stock, and its timing, hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture, and complements our analyses of Coronavirus impact on a diverse set of industrial companies, including Corning, GE and 3M. The complete set of coronavirus impact and timing analyses is available here.

 

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