Stock Analysis: Honeywell (HON)

Notes:
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.

Last Friday, Honeywell did another bang-up job, delivering the types of quarters I've come to expect.  Earnings were delivered at $1.51, two cents above estimates, while revenues were a healthy beat of $9.8B.  Additionally, the company raised the lower end of it's guidance for 2015 by five cents, putting the range now at $6.05 - $6.15.  While the guidance raise isn't exactly surprising to me, the rate and size of the guidance is starting to indicate that both my guidance, and potentially the high mark of these estimates could be beat due to the "accelerating organic growth" the company is seeing and predicted would continue throughout the year.  But it's not just the fact that the company beat numbers and raised guidance.  We know they've been conservative for the last few years on how they approach guidance.  What I really noticed was how they beat their numbers.  In addition to the accelerating organic growth, the company just crushed gross margins across the company.  Even in situations where they are seeing some pressures - particularly Oil and Gas, and a little bit in China - were well addressed through the execution and gains in margins.  New products are just starting to get out the doors and they're likely to only enhance what the company is currently delivering on.

I'm looking hard for holes in this report, but I'm finding that hard to do.  In part that worries me that I've become too much a cheerleader, but seriously, I'm looking!  When it comes to company performance right now, I see little to nothing to be worried about.  However, I do see some stock risks.  First, while I feel the company has shown it's ability to manage the situations, their involvement in the Oil & Gas sector could be a drag on the company.  The same goes for the fact that they have a fair amount of effort and business in China.  Both of these industries are currently seeing some hard hits against them and industrials tend to take a hit right along side them.  Finally, if interest rates rise, there's potential for a period of time where the entire market takes a hit due to inappropriate fears of a slowing economy.  To me, those are times of conviction.  Times to buy if you want/need more stock (not the case for me).  However, that's about as dire as things get as I see them right now.  I don't think the stock will suddenly shoot for the stars, but I do see it as a steady, reliable blue chip stock.

While I am seeing signs of upside surprise to my own estimates, I do not see enough to raise my guidance.  After the announcement, the stock broke up through its $105 ceiling, but it has since come back under it due to market pressures.  I'm looking to understand if we're forming a new floor around $105, or if it has potential in falling into a range again.  It is possible that the range has moved from $100 - $105 up to $102 - $107 after these results.  That would be fine, though who wouldn't love to see a range bound stock break out?  For now, I keep the stock rated a two with a price target of $110 based on 2015 earnings of 6.12 and an 18 multiple.  This is an early projection, but I can already see the potential for 2016 earnings of $6.75 and related price target of $121.