Is There More Upside For Honeywell’s Stock After A 40% Rebound?

by Trefis Team
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Despite its exposure to commercial aviation, the worst hit sector in the current crisis, Honeywell’s stock (NYSE:HON) has outperformed with over 43% gain since the recent lows of March 23, compared to the broader S&P 500, which gained around 35%. Looking at other industrial companies, 3M gained 34%, General Electric 19%, and Johnson Controls 36%. Why is that? The industrial companies with exposure to the aviation sector have seen massive cuts in stock prices over the recent months. But now with economies gradually opening up, and Boeing resuming its production for 737 Max, the recovery in aircraft components business could be sooner rather than later.

Having said that, Honeywell is susceptible to the current crisis. Its top line is expected to take a significant hit in the near term, due to a decline in global aviation, especially in Q2 this year. Fading consumer demand, reduced discretionary spending, and stay-at-home orders, resulting in minimal air travel, continue to take its toll on the airline industry, which in turn, will hurt Honeywell’s business. With the stock price already up 43% from recent lows, we believe it is fairly priced at these levels, and any significant upside is unlikely, as we detail in the Honeywell valuation dashboard. Our valuation for Honeywell takes into account the latest earnings. Our valuation is based on 4 factors: Total Revenue, Net Income Margin, No. of Shares, and P/E Multiple. We discuss these factors below.

Lower Revenues Will Likely Be A Drag On Earnings


  • Honeywell’s Revenues have seen a decrease of -9.5% from around $40.5 billion in 2017 to $36.7 billion in 2019 and we expect it to fall to $33.5 billion in 2020. The decline in 2019 can be attributed to de-consolidation of its low margin turbocharger and building products businesses. Looking forward, Honeywell revenues are expected to see a sharp decline in 2020, owing to the impact of Covid-19 on the company’s businesses.
  • Honeywell’s Net Income has increased from around $1.7 billion in 2017 to $6.2 billion in 2019, and we expect it to fall to $5.3 billion in 2020. This change is likely to be led by lower revenues and weaker margins.
  • Honeywell’s EPS has increased from a suppressed $2.21 in 2017 (due to changes in tax law) to $8.56 in 2019, and we expect it to fall to $7.52 in 2020. The change in EPS can be attributed to a reduction in net income and a lower expected share count due to stock repurchases.
  • Our Price Estimate of $147 For Honeywell’s Stock is based on our Detailed Valuation Model, and implies a 19.6x P/E Multiple on expected 2020 EPS of $7.52.

While we have a fair price estimate of $147 for the company, we also consider an outlier scenario of Honeywell’s stock falling below $100, due to the impact of the Covid-19 crisis.

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 complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

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