Does Honeywell Stock Have Any Room For Growth?

Honeywell stock (NYSE: HON) has seen a fall of 4% in a month, compared with -3% returns for the broader S&P500 index. The company reported upbeat Q4 results last month, with revenue falling in line but earnings coming in above our estimates. Still, HON stock trended lower due to lower-than-expected guidance for Q1 2023 and the overall weakness in the broader market. Despite its recent fall, we believe HON stock has little room for growth.

Honeywell’s revenue of $9.2 billion in Q4 2022 reflected a 6% y-o-y rise, led by an 11% rise in Aerospace, an 8% rise in Building Technologies, and a 10% rise in Performance Materials, while Safety & Productivity segment sales fell 8%. Continued growth in commercial air travel will aid Honeywell’s aftermarket sales in the near term. The company expects its aerospace sales to rise in low double-digits in 2023. Performance Materials and Building Technologies segments have benefited from pricing actions, a trend expected to continue in the near term.

The company has guided its overall top line to fall between $36 and $37 billion and its adjusted EPS to be between $8.80 and $9.20 in 2023. It expects a 50 to 90 basis points improvement in segment margin in 2023. Our model considers the company’s mid-single-digit top and bottom-line growth guidance, partly driven by slight operating margin expansion.

But, looking at valuation, at its current level of $197, HON stock is already trading at 22x its forward expected earnings of $9.00 (which is at the mid-point of the guided range), compared to its last five-year average of 23x, implying that HON stock has only a little room for growth. We estimate Honeywell’s Valuation to be around $209 per share, 6% above the current market price. This represents a 23x forward P/E multiple, aligning with its historical average mentioned above.