What To Expect From Honeywell Stock After It Reports Q2?

HON: Honeywell logo

Honeywell (NYSE:HON) is scheduled to report its Q2 2021 results on Friday, July 23. We expect Honeywell to report revenues and earnings above the consensus estimates, driven by a rebound in the overall economic activity, as global Covid-19 vaccination rates continues to rise. We expect the company to navigate well based on these trends over the latest quarter.

However, our forecast indicates that Honeywell’s valuation is $229 per share, which is in-line with the current market price of $230, implying that the stock is fully valued in our view. Our interactive dashboard analysis on Honeywell’s Pre-Earnings has additional details.

(1) Revenues expected to be above the consensus estimates

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Trefis estimates Honeywell’s Q2 2021 revenues to be around $8.70 Bil, compared to the $8.63 Bil consensus estimate. Honeywell in Q2 2020 saw a 19% decline in revenue, primarily due to lockdowns, which had a significant impact on its aerospace business (down 27% y-o-y). Now that nearly half of the U.S. population is fully vaccinated, and on the international front, most of the countries have undertaken large-scale vaccination programs, the economic growth has picked up pace. While the U.S. GDP grew 6.4% in Q1 2021, it is estimated to have grown 8.8% in Q2.

Honeywell has also seen a rebound in its sales over the recent quarters. In fact, the company’s total sales didn’t see any decline in Q1 2021 (remained flat y-o-y), led by a growth in its Building Technologies, and Safety & Production Solutions segments, which offset the continued decline in the Aerospace segment.

Looking at Safety & Production Solutions segment, the Q1 sales grew a large 47%, led by continued demand for personal protective equipment (PPE). Higher sales also resulted in margin expansion for the segment, a trend expected to continue in the near term. Our dashboard on Honeywell Revenues offers more details on the company’s segments.

2) EPS likely to top the consensus estimates

Honeywell’s Q2 2021 adjusted earnings per share (EPS) is expected to be $1.96 per Trefis analysis, slightly above the consensus estimate of $1.94. Honeywell’s adjusted net income of $1.4 Bil in Q1 2021 reflected a 14% decline from its $1.6 Bil figure in the prior-year quarter. This can be attributed to over 250 bps drop in net margins, partly due to a higher SG&A expense. However, as the company sees its sales rebound, the margins are expected to rise. As such, for the full-year, we expect the adjusted EPS to be higher at $8.00 compared to $7.10 in 2020.

(3) Stock price estimate in-line with the current market price

Going by our Honeywell’s Valuation, with an EPS estimate of around $8.00 and a P/E multiple of around 29x in 2021, this translates into a price of $229, which is in-line with the current market price of around $230. Although HON stock appears to be fully valued currently, if the company reports upbeat results, with recovery in sales faster than our estimates, and the guidance for the full-year is revised upward, it will result in HON stock seeing higher levels.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

While HON stock may be fully valued, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Honeywell vs Roper.

See all Trefis Price Estimates and Download Trefis Data here

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