Should You Pick Honeywell Stock After A 5% Fall This Year?

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HON: Honeywell logo
HON
Honeywell

Honeywell (NYSE: HON) reported its Q4 results earlier this month, with revenues missing and earnings marginally ahead of the street estimates. The company reported revenue of $9.4 billion and adjusted profit of $2.60 per share compared to the consensus estimates of $9.7 billion and $2.59, respectively. The company has been benefiting from a pickup in commercial aviation demand, a trend expected to continue. The stock has lost over 5% this year and we think it has some room for growth. In this note, we discuss Honeywell’s stock performance, key takeaways from its recent results, and valuation.

HON stock has seen little change, moving slightly from levels of $215 in early January 2021 to around $200 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. Overall, the performance of HON stock with respect to the index has been quite volatile. Returns for the stock were -2% in 2021, 3% in 2022, and -2% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that HON underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could HON face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump From a valuation perspective, HON stock looks like it has some room for growth. We estimate Honeywell’s Valuation to be $226 per share, reflecting roughly 15% upside from its current levels of $198. Our forecast is based on a 23x P/E multiple for HON and expected earnings of $9.97 on a per-share and adjusted basis for the full year 2024. The 23x P/E ratio aligns with the company’s average over the last four years.

Honeywell’s revenue of $9.4 billion in Q4 was up 3% y-o-y, led by a 15% rise in Aerospace and a 6% rise in Performance Materials, while Building Technologies sales were down 1% and Safety & Productivity segment sales fell 24%. Commercial aviation demand drove the Aerospace segment sales, while softness in the warehouse automation market weighed on the Safety & Productivity segment. Honeywell saw its operating margin contract 190 bps to 16.8% in Q4’23. High revenues and margin contraction resulted in adjusted earnings of $2.60 per share versus the $2.52 figure it reported in the prior-year quarter.

Looking forward, the company expects its full-year 2024 sales to be between $38.1 billion and $38.9 billion and adjusted earnings to be in the range of $9.80 and $10.10 per share. The company should continue to benefit from a robust demand environment for its aerospace and space and defense business. The growth may remain tepid for its other businesses amid challenging macroeconomic factors.

While HON stock appears to have some 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.

Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 HON Return -2% -8% 79%
 S&P 500 Return 5% 32% 127%
 Trefis Reinforced Value Portfolio 4% 43% 633%

[1] Returns as of 2/28/2024
[2] Cumulative total returns since the end of 2016

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