Honeywell Stock Could Offer More Upside From Current Levels

+10.08%
Upside
205
Market
226
Trefis
HON: Honeywell logo
HON
Honeywell

Honeywell’s stock (NYSE:HON) trades at $168 currently and it has lost 3% of its value so far this year. It traded at a pre-Covid high of $178 in February, and it is currently 6% below this peak level. Also, HON stock has gained 64% from the low of $103 seen in March 2020, as the economies are gradually opening up, resulting in increased consumer demand. Going by historical performance, we believe Honeywell could offer more upside in the near term to levels of around $180. Our conclusion is based on our detailed analysis of Honeywell’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 51% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.
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In contrast, here’s how Honeywell and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

Honeywell Stock Performance Over 2007-08 Financial Crisis

We see HON stock declined from levels of around $45 in September 2007 (pre-crisis peak) to levels of around $21 in March 2009 (as the markets bottomed out), implying HON stock lost 54% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $31 in early 2010, rising by 49% between March 2009 and January 2010.

S&P 500 Performance Over The 2007-08 Financial Crisis

S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

Fundamentals

How Do Honeywell’s Fundamentals Look In Recent Years?

Honeywell’s Revenues declined 5% from $38.6 billion in 2015 to $36.7 billion in 2019, primarily due to de-consolidation of its low-margin Transportation Systems, and Building Products business. Despite a decline in revenues, the company’s margins improved. This resulted in EPS increasing from $6.11 per share in 2015 to $8.52 in 2019.

Survival Check

Does Honeywell Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Honeywell’s total debt decreased from $15.5 billion in 2016 to $14.6 billion in 2019, while its total cash also increased from $9.4 billion to $10.4 billion over the same period. The company also generated $6.9 billion in cash from its operations, and it appears to be in a good position to weather the crisis.

CONCLUSION

Phases of COVID-19 crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-September 2020: Poor Q2 results for many companies, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy expectations

Over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. While we expect the stock to rebound to close to $180 in the near term, with investors focusing their attention on expected 2021 results, we believe Honeywell stock has the potential for strong gains longer term once fears surrounding the Covid outbreak are put to rest.

What if instead you are looking for a more balanced portfolio? Here’s a top quality portfolio to outperform the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk. It has outperformed the broader market year after year, consistently.

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