Honeywell (NYSE: HON) is scheduled to report its Q2 2022 results on Thursday, July 28. We expect the company to post revenue and earnings marginally below the street expectations. Although the company is expected to post steady sales growth for its aerospace business, led by a recovery in air travel, lower mask sales, and an anticipated headwind in performance material & technology business due to its exposure to Russia will weigh on the top-line growth. Furthermore, the impact of lockdowns in China may weigh on the company’s overall performance. Rising costs may hamper Honeywell’s operating margin expansion. However, our forecast indicates that HON stock has more room for growth, as discussed below. Our interactive dashboard analysis of Honeywell’s Earnings Preview has additional details.
(1) Revenues expected to be slightly below the consensus estimates
- Trefis estimates Honeywell’s Q2 2022 revenues to be around $8.6 billion, reflecting a low single-digit y-o-y decline and compares to the $8.7 billion consensus estimate.
- While Honeywell’s aerospace business has been a drag on its revenue growth since the beginning of the pandemic, it has started to see some growth over the recent quarters, a trend expected to continue in the near term.
- Honeywell’s safety & productivity solutions business has been the key growth driver in 2021 due to higher demand for PPE. However, given the tough sales comparison to last year, the segment sales may face pressure in the near term.
- Looking back at Q1 2022, Honeywell reported a 1% y-o-y decline in sales to $8.4 billion due to supply chain issues and lower Covid-19 mask volume.
- Our dashboard on Honeywell Revenues offers more details on the company’s top line and its comparison to peers.
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(2) EPS likely to be marginally below the consensus estimates
- Honeywell’s Q2 2022 adjusted earnings per share (EPS) is expected to be $2.00 per Trefis analysis, marginally below the $2.03 consensus estimate.
- Honeywell’s adjusted net income of $1.3 billion in Q1 2022 reflected a 3% y-o-y decline, primarily due to lower revenues.
- Although the company has undertaken pricing actions earlier this year and should aid the overall segment profits, the operating margin expansion in the near term may face headwinds from rising costs.
- However, for the full-year 2022, we expect the adjusted EPS to be higher at $8.62 than $8.06 in 2021, partly led by operating margin expansion in the second half of the year.
(3) HON stock has more room for growth
- We estimate Honeywell’s Valuation to be $232, which is over 30% above the current market price of $177.
- At its current levels, Honeywell stock is trading at a forward P/E multiple of under 21x based on our EPS estimate of $8.62 for 2022, compared to the last three-year average of 25x, implying that HON stock has some more room for growth.
- Furthermore, if the company reports upbeat Q2 results and provides an outlook better than the street estimates, the P/E multiple will likely be revised upward, resulting in higher levels for HON stock.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Earnings for the full year
While HON stock looks like it has more room for growth, it is helpful to see how Honeywell’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis 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 3M vs. AGCO.
With inflation rising and the Fed raising interest rates, among other factors, HON stock has fallen 14% this year. Can it drop more? See how low Honeywell stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes.
|S&P 500 Return||4%||-17%||76%|
|Trefis Multi-Strategy Portfolio||7%||-17%||227%|
 Month-to-date and year-to-date as of 7/20/2022
 Cumulative total returns since the end of 2016