Production at U.S. factories bounced back in May, exceeding expectations with a solid 0.9% increase led by manufacturing. With inflation easing over the past few months, this uptick underscores a renewed vigor in the industrial sector.

Moreover, the industrial landscape is undergoing a transformative era driven by the widespread adoption of automation and advanced technologies such as Industry 4.0 and IoT. These innovations are reshaping manufacturing operations worldwide, driving efficiency and productivity gains. By 2032, the industrial machinery market is poised to reach $1.30 trillion, growing at a CAGR of 7.5%.

Honeywell International Inc. (HON), one of the world’s top manufacturing and engineering conglomerates, has comfortably positioned itself in the industrial sector. HON makes everything from cockpit displays for aircraft to home thermostats. The industrial giant kicked off the year with impressive first-quarter results that exceeded market expectations.

For the first quarter of 2024, HON reported revenue of $9.11 billion, surpassing analysts’ estimate of $9.04 billion. Besides, the company’s adjusted earnings per share came in at $2.25, compared to the consensus estimate of $2.18.

Moreover, Honeywell’s proactive capital deployment of $1.6 billion in dividends, share repurchases, and capital expenditures during the quarter underscores its commitment to financial stability and shareholder value. On June 7, it paid its shareholders a quarterly dividend of $1.08 per share. Its annualized dividend of $4.32 per share translates to a dividend yield of 2.02% on the current share price.

Building on this quarter’s momentum and successful acquisitions, the company updated its 2024 outlook. HON anticipates full-year sales to range between $38.5 billion and $39.3 billion, with 4% to 6% organic growth. It also forecasts adjusted EPS in the range of $10.15 to $10.45, reflecting a solid increase of 7% to 10%.

HON’s shares have gained 14.1% over the past nine months to close the last trading session at $214.38.

Now, let’s look into the factors that could influence HON’s performance in the upcoming months.

Strategic Acquisitions

Honeywell continues its strategic expansion with two significant acquisitions this month. On June 20, HON announced an all-cash deal to acquire CAES Systems Holdings LLC from Advent International for $1.9 billion, approximately 14 times the estimated 2024 EBITDA on a tax-adjusted basis.

This acquisition aims to drive long-term growth and diversify revenue through CAES’ high-reliability radio frequency technologies, benefiting leading defense platforms. The deal will also enhance Honeywell’s aerospace capabilities with additional skilled engineers and automated facilities and offer significant international growth opportunities through CAES’ established positions in U.S. military platforms.

Earlier in the month, on June 3, the company completed its $4.95 billion acquisition of Carrier Global Corporation’s (CARR) Global Access Solutions business. The acquisition strengthens HON’s position in digital-age security solutions and aligns with key megatrends like automation. The deal enhances Honeywell’s Building Automation segment and is expected to boost annual sales by over $1 billion, leveraging the business’s growth potential, attractive margins, and recurring revenue.

Strong Financials

In the fiscal first quarter ended March 31, 2024, HON’s sales increased 2.7% year-over-year to $9.11 billion, driven by strong growth in Aerospace Technologies (up 18% organically) and Energy and Sustainability Solutions (up 5% organically). The Honeywell Connected Enterprise also saw over 20% sales growth, led by cyber and building offerings.

Operating income grew 9.9% from the prior-year quarter to $1.86 billion, while its attributable net income stood at $1.46 billion, up 4.9% year-over-year. The company’s adjusted earnings per share amounted to $2.25, representing an increase of 8.7% from the last year. Meanwhile, its operating margin improved by 130 basis points to 20.4%, indicating enhanced operational efficiency.

Moreover, HON generated $448 million in net cash from operating activities, a significant turnaround from the $784 million outflow in the same period last year. As of March 31, 2024, the company had cash and cash equivalents of $11.76 billion, up from $7.92 billion as of December 31, 2023.

Favorable Analyst Estimates

Analysts expect HON’s revenue for the fiscal second quarter (ending June 2024) to increase by 3.2% year-over-year to $9.43 billion. The consensus EPS estimate of $2.40 for the current quarter indicates a 7.8% improvement year-over-year. Moreover, the company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.

For the fiscal year ending December 2024, the company’s EPS is anticipated to grow 11.9% year-over-year to $10.25, while its revenue is expected to increase 5.8% from the prior year period to $38.78 billion.

Outstanding Profitability

In terms of the trailing-12-month gross profit margin, HON’s 37.46% is 20.9% higher than the 30.96% industry average. Likewise, its 24.17% trailing-12-month EBITDA margin is 74.6% higher than the industry average of 13.84%. HON’s trailing-12-month levered FCF margin of 12.13% is 91.9% higher than the 6.32% industry average.

Furthermore, its trailing-12-month net income margin, ROCE, and ROTA of 15.52%, 34.32%, and 8.72% compares favorably with their respective industry averages of 6.04%, 12.48%, and 4.92%.

POWR Ratings Exhibit Solid Prospects

HON’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HON boasts a B grade for Sentiment, which is consistent with its optimistic analyst estimates. 

The stock also earned a B grade for Quality, in sync with its higher-than-industry profitability. Further, its 24-month beta of 0.90 justifies its B grade for Stability.

HON is ranked #23 out of 79 stocks in the A-rated Industrial – Machinery industry. Click here to see the additional ratings for HON (Growth, Value, and Momentum).

Bottom Line

Honeywell’s latest earnings release highlights its effective management of a diverse portfolio and operational efficiency. Despite challenges in sectors like Building Automation and Industrial Automation, the Aerospace Technologies segment delivered strong performance, offsetting weaker areas.

Moreover, the company’s ability to generate a positive operating cash flow of $448 million, a significant turnaround from the previous year’s outflow of $977 million, underscores its operational resilience and effective cash management strategies. Additionally, a 6% annual increase in its backlog unlocks the potential for solid revenue growth in the future.

All said, with strategic initiatives aimed at enhancing market positioning and financial health, the company is poised for sustained growth and value creation. Hence, investors seeking exposure in the industrial sector could consider adding this stock to their portfolios.

How Does Honeywell International Inc. (HON) Stack Up Against Its Peers?

While HON has an overall grade of B, equating to a Buy rating, you may also check out these other A (Strong Buy)-rated stocks within the Industrial – Machinery industry: Twin Disc, Incorporated (TWIN), Donaldson Company, Inc. (DCI), and Tennant Company (TNC).

To explore more industrial machinery stocks, click here.

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HON shares were unchanged in premarket trading Friday. Year-to-date, HON has gained 3.33%, versus a 16.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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