Which Is A Better Pick – Honeywell Stock Or Travelers?

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HON: Honeywell logo
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Honeywell

Given its better prospects, we believe the insurance giant Travelers stock  (NYSE: TRV) is a better pick than Honeywell stock (NYSE: HON). Although these companies are from different sectors, we compare them because they have a similar revenue base of $35 billion to $38 billion. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power. Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better gauge their valuations.

Interestingly, HON and TRV have had a Sharpe Ratio of 0.3 since early 2017, lower than 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Looking at stock returns, both have underperformed vis-à-vis broader markets amid rising concerns over slowing economic growth. While HON is down 16% this year, TRV is down 13%, and the S&P500 index is up 11%. There is more to the comparison, and in the sections below, we discuss why we believe that TRV will outperform HON in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Honeywell vs. TravelersWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

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1. Travelers’ Revenue Growth Is Better 

  • Travelers’ revenue growth has been better, with a 5.4% average annual growth rate in the last three years, compared to -0.9% for Honeywell.
  • With airlines being one of the worst-hit sectors during the pandemic, Honeywell’s aerospace revenues were weighed down during the pandemic.
  • While this trend has reversed and Honeywell is seeing a steady rise in sales for most of its businesses – aerospace, building technologies, and the performance materials business –  lower demand for personal protective equipment weighs on its safety & productivity solutions segment sales.
  • Travelers has seen higher revenues in each of the three insurance segments – business insurance, bond & specialty insurance, and personal insurance.
  • Improved pricing and higher retention have bolstered the company’s premium income in the recent past.
  • If we look at the last twelve-month period revenues, Travelers has fared better with 8.3% sales growth, while Honeywell saw its revenue rise by 4.9%.
  • Our Honeywell Revenue Comparison and Travelers Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, we expect revenue for Travelers to grow faster than Honeywell in the next three years.

2. Honeywell Is More Profitable

  • Honeywell’s operating margin has slid slightly from 18.7% in 2019 to 18.1% in 2022, while Travelers’ operating margin declined from 11.0% to 10.0% over this period.
  • Looking at the last twelve-month period, Honeywell’s operating margin of 19.7% fares better than 7.1% for Travelers.
  • Our Honeywell Operating Income Comparison and Travelers Operating Income Comparison dashboards have more details.
  • Looking at financial risk, both are comparable. Honeywell’s 18% debt as a percentage of equity is lower than 21% for Travelers, but its 14% cash as a percentage of assets is lower than 61% for the latter, implying that Honeywell has a better debt position, but Travelers has more cash cushion.

3. The Net of It All

  • We see that Travelers has demonstrated better revenue growth and has more cash cushion. On the other hand, Honeywell is more profitable and has a better debt position.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe Travelers is a better pick for the next three years.
  • The table below summarizes our revenue and return expectations for both companies and points to an expected return of 10% for TRV vs. a 4% expected return for HON over the next three years, based on Trefis Machine Learning analysis – Honeywell vs. Travelers – which also provides more details on how we arrive at these numbers.
  • Honeywell’s stock trades at 3.3x revenues, vs. its last five-year average of 3.4x, and Travelers stock trades at 1.0x revenues, compared to its last five-year average of 1.2x
  • Our Honeywell (HON) Valuation Ratios Comparison and Travelers (TRV) Valuation Ratios Comparison have more details.

While TRV may outperform HON in the next three years, 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.

Returns Oct 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 HON Return -3% -16% 62%
 TRV Return 0% -13% 34%
 S&P 500 Return -1% 11% 90%
 Trefis Reinforced Value Portfolio -3% 19% 513%

[1] Month-to-date and year-to-date as of 10/6/2023
[2] Cumulative total returns since the end of 2016

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