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Analyst Blog

On Jan 27, we have reaffirmed our Neutral recommendation on diversified business conglomerate Honeywell International Inc. (HON - Analyst Report) backed by its healthy fourth-quarter 2013 results. The company recorded solid year-over-year growth in both earnings and revenues for the quarter. Honeywell also comfortably beat the respective Zacks Consensus Estimate for the quarter. However, adverse foreign currency translations and volatility in commodity prices force us to remain on the sidelines.
    
Why Reiterated    

Honeywell’s diversified business portfolio has the potential to earn consistent above-average returns and mitigate operating risks. The company’s diligent focus on working capital management, free cash flow generation and a conservative balance sheet remain key positive attributes amid a challenging macroeconomic environment.
    
We remain encouraged by management’s continued efforts to launch products and technologies in order to drive organic growth and expand business in new geographical regions. Additionally, management’s effort to drive margin expansion is also praiseworthy. Operational improvements coupled with strong productivity and lucrative investments are expected to contribute to margin expansion in the long run.  

However, given its international presence, the company often faces unfavorable foreign currency movements, impacting its top-line growth. Any future slowdown in the global economy or the manufacturing industry as a whole will have an adverse impact on its business, and would hamper its long-term growth potential.

Over the last 7 days, the Zacks Consensus Estimate for 2014 has decreased by a penny to $5.52. For 2015, the estimates have remained constant at $6.12 over the same period. However, we expect the earnings estimates to move up gradually and prefer to remain at the middle-of-the-road for Honeywell.    

Other Stocks to Consider
       
Honeywell currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look include Hutchison Whampoa Ltd. (HUWHY), Carlisle Companies Inc. (CSL - Snapshot Report) and Crane Co. (CR - Snapshot Report), each having a Zacks Rank #2 (Buy).

 

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