Honeywell International Inc. (HON - Get Rating) is a diversified technology and manufacturing company, operating through four segments – aerospace, building technologies, performance materials and technologies, and safety and productivity solutions. It markets wireless connectivity,  management and technical services, instrumentation, and software and related services.

HON’s strong third-quarter results, driven by double-digit growth in defense and space, warehouse automation and personal protective equipment, as well as recurring software, are an indication of its  favorable positioning to benefit from an economic recovery. The company’s large exposure to business aviation should give it a  sustainable competitive advantage and make it one of the best aerospace businesses for investors to play a recovery in aviation.

The company’s strategic acquisitions in the aerospace business and its focus on transforming itself to a premier software-industrial company have helped it to gain 14.9% over the past year. This impressive performance combined with several other factors has helped HON earn a Buy rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates HON:

Trade Grade: B

HON is currently trading lower than its 50-day moving average of $208.07, but higher than its 200-day moving average of $168.22, which indicates a moderate uptrend. The stock has gained 19.6% over the past three months, reflecting  solid short-term bullishness.

HON’s safety and productivity solutions sales for the third quarter ended September 30, 2020 were up 8% year-over-year to $1.58 billion, driven by double-digit Intelligrated and personal protective equipment growth. The company’s operating margin improved 320 basis points sequentially. Its safety and productivity solution’s segment margin rose 50 basis points year-over-year to 13.9%, while Honeywell building technologies’ segment margin increased 60 basis points from the prior-year quarter to 21.6% over this period.

This month HON announced that it is providing GOL Airlines of Brazil and Sky Regional Airlines of Canada with Honeywell Forge software to help increase the airlines’ operational efficiencies and decrease costs associated with unnecessary fuel consumption. The two airlines join a growing list of more than 10,000 aircraft worldwide that are harnessing the power of Honeywell Forge. profitable.

On January 26, Pittsburgh International Airport announced a partnership with HON to deploy its healthy buildings dashboard and air quality sensing technology as well as the Honeywell Forge enterprise performance management software. HON’s comprehensive effort to quickly develop innovative solutions should help it witness robust growth in the near future.

Buy & Hold Grade: B

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , HON is well positioned. The stock is currently trading 8% below its 52-week high of $216.70, which it hit on December 14.

The company’s total assets have grown  at a CAGR of 3.8% over the past three years, while its levered free cash flow increased at a CAGR of 5.7% over this period. This can be attributed to the company’s continued focus on driving sales growth and its short- and long-term investments.

Peer Grade: D

HON is currently ranked #13 of 51 stocks in the Industrial – Manufacturing industry. Other popular stocks in this industry are Siemens Aktiengesellschaft (SIEGY - Get Rating), ITOCHU Corporation (ITOCY - Get Rating) and Ormat Technologies, Inc. (ORA - Get Rating)

All these industry leaders have beaten HON over the past year. ORA, SIEGY, and ITOCY gained 41.5%, 25.9%, and 26.2%, respectively, over the past year. This compares to HON’s 14.9% returns over this period.

Industry Rank: A

The Industrial – Manufacturing industry is ranked #23 of  123 StockNews.com industries. The companies in this industry offer aircraft engines, integrated avionics, systems and service solutions, connectivity and sensors solutions, and related products and services for aircraft manufacturers and operators, airlines, military services, and defense and space contractors, spare parts, and repair and maintenance services for the aftermarket.

Despite  suffering the  impact of the COVID-19 pandemic on manufacturing operations, there is reason to be optimistic about this sector as the global economy recovers steadily. With demand for products surging, many industrial manufacturers have stepped up to the plate and  upgraded their production methods and have recorded modest growth. The companies in this industry are constantly  revamping their business models to position themselves for a snap-back in demand.

Overall POWR Rating: B (Buy)

HON is rated Buy due to its impressive financials, short- and long-term bullishness, solid price momentum, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

As the leading industrial conglomerate, HON’s strong balance sheet, operational efficiency, and continuous investments in new markets and new technologies to create value for its customers make it an attractive bet to ride the industry’s rebound. The company’s aerospace segment is set for a speedy recovery this year.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for HON. It has an average broker rating of 1.54, indicating favorable analyst sentiment. Of 21 Wall Street analysts that rated the stock, 7 rated it a “Strong Buy.” 

A consensus EPS estimate of $7.87 for 2021 represents  an 11.9% improvement year-over-year. Moreover, HON beat the Street’s EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $33.95 billion for the current year represents a 5.6% increase from the same period last year.

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HON shares were trading at $203.51 per share on Thursday morning, up $4.13 (+2.07%). Year-to-date, HON has declined -4.32%, versus a 1.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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