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Honeywell to Gain From Products & Buyouts Amid Pandemic Woes

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On Nov 30, we issued an updated research report on Honeywell International Inc. (HON - Free Report) .

In the past three months, this Zacks Rank #3 (Hold) stock has returned 27.1% compared with the industry’s growth of 19.6%.

Present Scenario

Honeywell stands to benefit from continued strength across its defense and space businesses, supported by strong U.S. government defense budgets. Also, solid demand for warehouse automation products and high backlog level bode well for its Intelligrated business. Going forward, solid product offerings, recovery in business aviation aftermarket, strong demand for personal protective equipment and growth opportunities across building solutions and safety products businesses might also act as tailwinds for the company.

Also, the acquisition of Ballard Unmanned Systems (October 2020) is expected to enhance growth scopes for Honeywell in the unmanned aerial systems market. Moreover, its buyout of Rocky Research in the same month will boost growth opportunities for its existing offerings in the energy storage, power and thermal management, and power generation arenas. In addition, various cost-control measures adopted by the company have enabled it to reduce costs by about $1,050 million year over year in the first nine months of 2020.

Moreover, Honeywell remains committed to rewarding shareholders handsomely through dividend payments and share buybacks. In the first nine months of 2020, the company used $1,921 million for paying out dividends, and repurchasing shares worth $2,149 million. Notably, the quarterly dividend rate was hiked by 3.3% in September 2020.

Despite the positives, headwinds across its commercial original equipment business owing to lower air transport, slowdown in original equipment build rates and lower business jet demand are likely to affect its top-line performance in the near term. Also, soft outlook for oil and gas capital expenditure, weakness in its UOP business and automation project delays in process solutions business are likely to affect the company’s performance.  

In addition, Honeywell’s high-debt profile poses a concern. In the last five years (2015-2019), its long-term debt increased 14.9% (CAGR). The metric was $17,687 million at the end of the third quarter of 2020, reflecting an increase of 0.5% on a sequential basis. Any further increase in debt levels can raise the company’s financial obligations.

Key Picks

Some better-ranked stocks from the same space are Danaher Corporation (DHR - Free Report) , ITT Inc. (ITT - Free Report) and 3M Company (MMM - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Danaher delivered a positive earnings surprise of 17.00%, on average, in the trailing four quarters.

ITT delivered a positive earnings surprise of 22.39%, on average, in the trailing four quarters.

3M delivered a positive earnings surprise of 1.85%, on average, in the trailing four quarters.

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