Back to top

Analyst Blog

Diversified conglomerate Honeywell International Inc. (HON - Analyst Report) recently offered a long-term outlook on its business and growth strategy spanning the next five years. The company also maintained that it will excel the set targets if we go by its operational performance in the last five years. Over the said period Honeywell achieved a total shareholder return of 219%, approximately 1.7x the S&P 500.

Honeywell expects to organically increase overall sales in 2018 by $7–$12 billion to $46–$51 billion. Segment operating margins are expected to improve 220–370 bps over 2013 levels to 18.5%–20.0%, leading to double-digit earnings growth and almost a two-fold increase in the cash flow.

This in turn will enable the company to pursue strategic mergers and acquisitions, engage in opportunistic share buybacks, and maintain competitive dividends. Over the next five years, Honeywell aims to deploy over $10 billion for strategic acquisitions.

In order to successfully achieve the target by leveraging its process enablers and building on the “One Honeywell” culture, the company has also initiated certain operational tools. The latest among these include Honeywell User Experience (HUE), an innovative approach to designing and developing new products and services. HUE deploys rapid prototyping and other design principles for faster cycle time. This makes Honeywell products and services more user-friendly, intuitive and more productive and will inevitably lead to increased customer value and loyalty.  

Honeywell also continues to embed software into its products and services to improve the product development process. The company is focused on the global achievement of CMMI (Capability Maturity Model Integration) Level 5 accreditation, which will improve the quality and efficiency of its software development. Together with other key process enablers such as the Honeywell Operating System (HOS), Functional Transformation (FT) and Velocity Product Development (VPD), the company is well poised to reach its target.

At the same time, Honeywell reiterated its guidance for 2014. Earnings are expected in the range of $5.35 to $5.55 per share on sales of $40.3–$40.7 billion. Operating margin is projected in the range of 15.2%–15.5%, while free cash flow is expected in the band of $3.8–$4.0 billion.

We are encouraged by management’s continued efforts to drive organic growth while expanding its business in new geographical regions. Honeywell currently has a Zacks Rank #3 (Hold). Stocks that look promising at current levels include Marubeni Corp. , Mitsubishi Corp. and 3M Co. (MMM - Analyst Report), each carrying a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.