Earnings Analysis: Honeywell (HON)
Back on April 20, Honeywell announced the results of their first quarter operations. Results were strong, with earnings coming in a $1.95 and sales coming in at $10.4B - both of which were beats against expectations of $1.90 and $10.02B respectively. Organic sales also beat guidance of 2% - 4%, by resulting in 5% along with 40 basis points of margin expansion and $1B of cash flow. Additionally, the company spent $1.4B in share repurchases ($950M) and dividends since there weren't ideal investment opportunities to go after. Growth was led by the aerospace division with 8% organic growth along with 6% organic growth from the Safety and Productivity solutions division. Home and Business Technologies and Performance Materials and Technologies grew 2% and 3% organically, respectively.
Results were strong enough that the company raised EPS guidance to a range of $7.85 - $8.05, raising both the lower and upper ends. They anticipate organic growth of 3%-5% and the sales of the businesses planned to be spun off this year continue to be on time with third and fourth quarter target timelines.
Despite the positive news and performance, the stock has not responded well. It seems that expectations were for higher results than what was provided and after a short jump, the stock has fallen back down some again. I see this as a short-term result, given the strong performance and guidance by the company's trustworthy management, but all of the Tariff talk is spooking people out. The company stated there was almost no impact by the initial set of tariffs and they're monitoring things closely. With much of their production actually in China, I see less of an impact to Honeywell than many perceive. It is possible the Chinese boycott the company in some way, but that's going to happen to other companies long before this one. I continue to hold onto the stock for the value creation of the spinoffs as well as the general strong performance by this leadership team in general. Aerospace is in the early stages of growth, the global economy is still doing well, overall, and Honeywell appears well positioned to take advantage.
Given the guidance improvement, I'm increasing both my earnings estimate and price target for 2018 to $8.00 and $168 respectively. I'm maintaining my multiple of 21 for the time being. I'm also maintaining my rating of a 1, given the prices we're currently at. Were it not for my full position, I'd be looking for small buying points at these levels with another buy point around $140. The market is extremely fickle now, after being fairly laid back last year. While it has been hard to perform well, I believe my long-term strategy in this holding is staying true to its vision. That doesn't always mean the market will price it accordingly, though. These are the times to work at taking advantage, but you have to be able to stomach the action.
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.
Results were strong enough that the company raised EPS guidance to a range of $7.85 - $8.05, raising both the lower and upper ends. They anticipate organic growth of 3%-5% and the sales of the businesses planned to be spun off this year continue to be on time with third and fourth quarter target timelines.
Despite the positive news and performance, the stock has not responded well. It seems that expectations were for higher results than what was provided and after a short jump, the stock has fallen back down some again. I see this as a short-term result, given the strong performance and guidance by the company's trustworthy management, but all of the Tariff talk is spooking people out. The company stated there was almost no impact by the initial set of tariffs and they're monitoring things closely. With much of their production actually in China, I see less of an impact to Honeywell than many perceive. It is possible the Chinese boycott the company in some way, but that's going to happen to other companies long before this one. I continue to hold onto the stock for the value creation of the spinoffs as well as the general strong performance by this leadership team in general. Aerospace is in the early stages of growth, the global economy is still doing well, overall, and Honeywell appears well positioned to take advantage.
Given the guidance improvement, I'm increasing both my earnings estimate and price target for 2018 to $8.00 and $168 respectively. I'm maintaining my multiple of 21 for the time being. I'm also maintaining my rating of a 1, given the prices we're currently at. Were it not for my full position, I'd be looking for small buying points at these levels with another buy point around $140. The market is extremely fickle now, after being fairly laid back last year. While it has been hard to perform well, I believe my long-term strategy in this holding is staying true to its vision. That doesn't always mean the market will price it accordingly, though. These are the times to work at taking advantage, but you have to be able to stomach the action.
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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