Stock Analysis: Honeywell (HON)

Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

We've had 2 events with Honeywell this week I should speak to.  First, 2015 earnings guidance has been provided in an analyst call on Monday.  Results were generally in line with what was originally expected - despite the recent bubble popping we've seen in oil.  While not especially surprising to me, the guidance was good.  Honeywell was conservative with their estimates, as has become the norm from this management team.  Despite that, they're still looking at 4% organic growth in sales, and double-digit earnings growth for the year.  That's  not too shabby and if the global economy actually took off, who knows what they could do.  While the US is doing well and they are the largest source of sales/income, emerging markets - primarily China and India, have been growing at a stong pace.  This pace is also expected to continue, even with all the worries of China's slowing economy.  Management provided a earnings guidance range of $5.95 - $6.15.  My expectations have been $6.12, so I am on the high end.  I firmly believe the company can pull that off as well.  Keep in mind that all of these numbers and guidances are based off a concept of no share buybacks.  Similar companies GE and 3M have increased their dividends and buyback plans in their announcements this week.  It was also a topic of question in their guidance call as analysts were wondering if Honeywell had plans for that "excess cash."  CEO Cote stated he believes that the money would be best if spent using for purchases of other companies rather than share buy backs.  However, the consideration is still on the table.  I do expect to see a decent dividend boost next year, but it'll probably keep the yield around 2.2% if prices head where I think.  

The second thing that came up was the purchase of scanning and mobility company Datamax O'Neil for $185 million.  While I don't expect this to be a significant purchase, it does align nicely with Honeywell's existing portfolio for barcode printin, scanning and heavy duty mobility solutions and will likely expand their offering.  The deal is expected to close in the first quarter of 2015, so it might add a penny to earnings estimates.  True to their words on Monday, they want to use their strong balance sheet to buy more companies.  I would not be surprised if there is more in the works.

In all, the guidance was around what I expected, with lots of opportunity for guidance raises through the year if things go well.  I maintain my 2015 earnings estimates ot $6.12 and my price target stays at $110.  I maintain a rank of a 2, given the stock has run a bit.  You would be wiser to buy some if it pulls back in the mid-to-low 90s.