Earnings Analysis: Honeywell (HON)
On October 19, Honeywell announced their third quarter earnings results and they were fantastic. Earnings came in at $2.03, beating out the $1.99 estimates while revenues came in at $10.76B which just edged expectations of $10.75B. Organic sales came in at 7% which was the very high end of the anticipated range while margin expansion exceeded their range by 20 basis points on a 50 basis point high end. On top of that, the company exceeded the guided amount of capital returned to shareholders via buybacks by $1.5B on a $3B guidance. Hopefully, the company was buying back shares towards the end of the quarter when the stock was getting hit its hardest, but if it was, we certainly haven't seen it in the stock prices since - outside of the fact that they may not be in a window in which they can buy back shares now, resulting in less of a floor of protection for the stock.
All segments performed well for the company with SPS and Aero leading the way with double-digit organic sales growth. This is a pretty impressive stat for such a large conglomerate. Growth in the portfolio was strong with very little negatives to talk about. All while spinning off 2 new companies from parts of their homes and autos portfolios at the same time - and ahead of time. While all this news from the past was good, what really catches my eye is their forward guidance. With all of the tariffs and economic slowdown talk that is taking place, this company continues to expect organic growth of 5-6% next quarter - despite the completion of the spin-offs. In fact all numbers on the year are expected to outperform despite the spin-offs. And as they provided a very early rough draft for 2019, they still see strength in their end markets despite all of the tariffs and resulting cost increases they may see in relation to this. One advantage is that the company focuses on local delivery, but if China's economy is slowing, you'd still expect this to be a concern to top and bottom line results.
Since the announcement, the stock has been absolutely trounced in line with all of the tariff and interest rate fears going through the market. There is anticipation of a slowdown from these events and this concept is getting priced into the stock - to the point that I think it's overkill. At this time this stock is priced in at 16 time next year's earnings - if they only grew earnings by 10%. Their track record is showing it'll outpace that, given the forward guidance we're starting to hear and the consideration that this company continually plays things safe. As for me, I'm expecting earnings for 2019 to be $9.00 and I still believe this company deserves a multiple of at least 18. This would place my price target at $162, which is about 15% higher than today's closing price. I truly believe we're at a point where we are seeing great value in the stock, but that doesn't mean it's done going down yet. I'm feeling just as certain that the market is still trying to find a bottom, overall. Given the value, I rank the stock a one and encourage anyone looking to get a position to think about buying small positions starting now and see if you can keep your cost basis around here or lower.
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.
All segments performed well for the company with SPS and Aero leading the way with double-digit organic sales growth. This is a pretty impressive stat for such a large conglomerate. Growth in the portfolio was strong with very little negatives to talk about. All while spinning off 2 new companies from parts of their homes and autos portfolios at the same time - and ahead of time. While all this news from the past was good, what really catches my eye is their forward guidance. With all of the tariffs and economic slowdown talk that is taking place, this company continues to expect organic growth of 5-6% next quarter - despite the completion of the spin-offs. In fact all numbers on the year are expected to outperform despite the spin-offs. And as they provided a very early rough draft for 2019, they still see strength in their end markets despite all of the tariffs and resulting cost increases they may see in relation to this. One advantage is that the company focuses on local delivery, but if China's economy is slowing, you'd still expect this to be a concern to top and bottom line results.
Since the announcement, the stock has been absolutely trounced in line with all of the tariff and interest rate fears going through the market. There is anticipation of a slowdown from these events and this concept is getting priced into the stock - to the point that I think it's overkill. At this time this stock is priced in at 16 time next year's earnings - if they only grew earnings by 10%. Their track record is showing it'll outpace that, given the forward guidance we're starting to hear and the consideration that this company continually plays things safe. As for me, I'm expecting earnings for 2019 to be $9.00 and I still believe this company deserves a multiple of at least 18. This would place my price target at $162, which is about 15% higher than today's closing price. I truly believe we're at a point where we are seeing great value in the stock, but that doesn't mean it's done going down yet. I'm feeling just as certain that the market is still trying to find a bottom, overall. Given the value, I rank the stock a one and encourage anyone looking to get a position to think about buying small positions starting now and see if you can keep your cost basis around here or lower.
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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