Honeywell stock (NYSE: HON) is up a solid 15% in a month, significantly outperforming the broader S&P500 index, up just 2%. The rise in HON stock can be attributed to its upbeat Q3 earnings. Its top line was below, but earnings were comfortably above our estimates, driven by better price realization, which more than offset a low single-digit decline in volume and foreign currency translation.
Honeywell’s revenue of $9.0 billion reflected a 6% y-o-y growth, driven by a 9% rise in Aerospace, an 11% rise in Building Technologies, and an 8% rise in Performance Materials, which more than offset a 7% fall in Safety & Productivity Solutions segment sales. The company’s operating margin also improved by 90 bps to 19.5%.
Overall, Honeywell’s Q3 results were good, and it also revised its full-year 2022 earnings guidance to $8.75 on a per-share and adjusted basis, compared to its prior guidance of $8.67 (at mid-points of their range). However, it lowered its sales outlook to $35.6 billion, vs. $35.8 billion earlier (at mid-points of their range).
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Given the recently announced results and outlook, we have updated our model and revised our estimates. We expect full-year 2022 revenue to be $35.5 billion and earnings to be $8.72 on a per-share and adjusted basis, both falling within the company’s provided guidance. We have revised our Honeywell’s valuation to $208 per share (vs. $210 earlier), reflecting only a 2% upside from its current market price near $204.
Our valuation is based on a forward P/E ratio of 24x based on our earnings forecast of $8.72 on a per-share basis for the full-year 2022. At its current levels, HON stock is trading 23x its forward earnings, compared to the last three-year average of 25x, implying that there is only a little room for growth.
But what about the near term?
Given that HON stock has seen a rise of 15% in a month, will it continue its upward trajectory, or is a fall imminent? Going by historical performance, there is a higher chance of a rise for HON stock over the next month. A move of 15% in a month has occurred 33 times in the past ten years. Of those instances, 19 resulted in HON stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 19 out of 33, or about a 58% chance of a rise in HON stock over the next month. See our analysis of Honeywell Stock Chance of Rise for more details.
Calculation of ‘Event Probability‘ and ‘Chance of Rise‘ using the last ten years’ data
- After moving 4% or more over five days, the stock rose on 54% of the occasions in the next five days.
- After moving 15% or more over ten days, the stock rose on 47% of the occasions in the next ten days.
- After moving 15% or more over a twenty-one-day period, the stock rose on 58% of the occasions in the next twenty-one days.
This pattern suggests a higher chance of a rise in HON stock over the next five and twenty-one days.
Honeywell (HON) Return (Recent) Comparison With Peers
- Five-Day Return: HON highest at 4.0%; MOG.A lowest at -10.0%
- Ten-Day Return: HON highest at 15.1%; MOG.A lowest at -6.1%
- Twenty-One Day Return: GE highest at 16.2%; MOG.A lowest at -0.1%
Furthermore, the Covid-19 crisis and recent market volatility have created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised at 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 2% 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%||-22%||66%|
|Trefis Multi-Strategy Portfolio||-5%||-26%||193%|
 Month-to-date and year-to-date as of 11/4/2022
 Cumulative total returns since the end of 2016