Honeywell (HON) Displays Bright Prospects, Risks Remain

On Sep 9, we issued an updated research report on Honeywell International Inc. (NYSE:HON) .

In the past month, this Zacks Rank #3 (Hold) stock has yielded a return of 3.7% compared with the industry’s growth of 2.1%.

Existing Scenario

Strength in commercial aftermarket business and strong orders in the U.S. and international defense business are likely to drive Honeywell’s Aerospace segment’s revenues in the quarters ahead. Also, solid demand for commercial fire and security products is likely to continue bolstering revenues of Building Technologies segment. Further, the company believes that strong demand for its warehouse automation, sensing and IoT businesses will boost Safety and Productivity Solutions segment’s revenues. For 2019, it currently anticipates generating revenues in the range of $36.7-$37.2 billion compared with the previously mentioned $36.5-$37.2 billion.

Also, in 2018, the company completed portfolio transformation and reorganized its operating segments, with spin-off of its Homes product portfolio, ADI Global Distribution business and Transportation Systems business. In addition, the company acquired the German company Transnorm in November 2018. These tactical initiatives will help it concentrate on high-growth industrial businesses and boost sales.

Moving ahead, Honeywell’s continued focus on productivity improvements, greater operational excellence, supply chain initiatives and stock buybacks are likely to continue driving its profitability. For 2019, the company revised its earnings view to the $7.95-$8.15 per share range from the previous projection of $7.90-$8.15.

However, softness in the company’s productivity products business due to inventory destocking, fewer large project rollouts in the mobility space and lower channel sell-through remains a concern. Also, if unchecked, high debt levels can increase the company's financial obligations and prove detrimental to its profitability.

Further, high research and development costs could be a drag on Honeywell’s Aerospace segment’s profitability.

Stocks to Consider

Some better-ranked stocks in the same space are Federal Signal Corporation (NYSE:FSS) , United Technologies Corporation (NYSE:UTX) and Carlisle Companies Incorporated (NYSE:CSL) . While Federal Signal sports a Zacks Rank #1 (Strong Buy), United Technologies and Carlisle carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Federal Signal surpassed estimates in each of the trailing four quarters, the average positive earnings surprise being 16.48%.

United Technologies outpaced estimates in each of the preceding four quarters, the average earnings surprise being 13.19%.

Carlisle exceeded estimates thrice in the trailing four quarters, the average earnings surprise being 17.16%.

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