Stock Analysis: Honeywell (HON)
On Friday, Honeywell announced results for fourth quarter and fiscal year 2017. As expected, results were mostly spectacular. Earnings came in at $1.85 on organic sales of 6%. Revenues were $10.8B while delivering free cash flow (FCF) of 123%. They repurchased 10.3M shares and also increased the dividend by 12% during the quarter. These results mostly topped analyst expectations where earnings beat by a penny and revenues beat by around $90M. Many analysts were hoping for 7% organic growth, though, which was the one bad mark for the company. That said, the company projected only 2% - 4% organic growth, so they well exceeded their own expectations. It is important to note that after all of these numbers, the company did report a loss of $3.8B due to provisions for U.S. Tax reform. But these same reforms also allowed the company to adjust earnings guidance for 2018 up to $7.75 - $8.00, which is in line with my personal estimates of how reform would adjust earnings (I had conservatively estimated 2018 earnings to come in at $7.90).
In regards to the spin-offs that are coming this year, everything is on track for the spins to happen during the year. Businesses are continuing to do well, with Turbo demand continuing to be strong and home products also doing well. Spinning these companies off will allow them to capitalize their markets and ensure they're getting the investment they need. As I said, they'll also be strong performers in their own right. Spinning these off will improve margins, though, and allow the company to deploy more capital to expand higher margin businesses, like aero.
As I previously mentioned, earnings guidance was increased by twenty cents from the December investors forecast meeting. My estimates were already adjusted to a conservative 2018 price of $7.90, which is towards the upper end of current guidance. I still maintain my multiple of 21, but state that a multiple of 22 is still fair. 2018 price target is $166, but $174 isn't out of the question - especially given current price after announcements. I still believe the stock is a two at these price levels. I do believe we're going to see an unlocking of value in the stock with the spin-offs, but I'm trying to stay conservative. The company continues to expect a 2% - 4% organic growth for 2018, but I believe they should be able to do better than that. When they prove it, I expect we can see some EPS increases as well as possibly the multiple. The company continues to be strong and now they might be in the sweet spot. The concern to watch for is the overall market and when it decides it's gotten too hot. When that happens, I expect the stock will take a pretty hard hit as well.
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.
In regards to the spin-offs that are coming this year, everything is on track for the spins to happen during the year. Businesses are continuing to do well, with Turbo demand continuing to be strong and home products also doing well. Spinning these companies off will allow them to capitalize their markets and ensure they're getting the investment they need. As I said, they'll also be strong performers in their own right. Spinning these off will improve margins, though, and allow the company to deploy more capital to expand higher margin businesses, like aero.
As I previously mentioned, earnings guidance was increased by twenty cents from the December investors forecast meeting. My estimates were already adjusted to a conservative 2018 price of $7.90, which is towards the upper end of current guidance. I still maintain my multiple of 21, but state that a multiple of 22 is still fair. 2018 price target is $166, but $174 isn't out of the question - especially given current price after announcements. I still believe the stock is a two at these price levels. I do believe we're going to see an unlocking of value in the stock with the spin-offs, but I'm trying to stay conservative. The company continues to expect a 2% - 4% organic growth for 2018, but I believe they should be able to do better than that. When they prove it, I expect we can see some EPS increases as well as possibly the multiple. The company continues to be strong and now they might be in the sweet spot. The concern to watch for is the overall market and when it decides it's gotten too hot. When that happens, I expect the stock will take a pretty hard hit as well.
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.
Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities. All views expressed are solely of my own and I am not a professional money manager. Please consult with your financial adviser before taking any action in your own portfolio.
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