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Honeywell (HON) Displays Bright Prospects, Risks Persist

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On Jan 4, 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 26.6% compared with the industry’s growth of 19.2%.

Existing Scenario

Honeywell has been witnessing strength across its defense and space businesses, supported by strong U.S. government defense budgets. Also, recovery in business aviation aftermarket, robust demand for personal protective equipment, and growth opportunities across building solutions and safety products businesses are likely to drive the company’s performance in the days ahead.

Further, the company’s Ballard Unmanned Systems buyout (October 2020) is expected to strengthen its prospects in the unmanned aerial systems market. Moreover, the buyout of Rocky Research in the same month is likely to have bolstered prospects for its existing offerings in the energy storage, power and thermal management, and power generation arenas. In addition, Honeywell’s agreement to acquire Sparta Systems (December 2020), will help in strengthening its position in digital transformation, industrial automation and enterprise performance management solutions space (read more: Honeywell to Buy Sparta, Expand Life Science Offerings).

However, the company has been experiencing headwinds across its commercial original equipment business on account of lower air transport, slowdown in original equipment build rates and lower business jet demand. Also, softness in its UOP business and automation project delays in process solutions business are likely to affect the company’s top-line performance in the near term.

Moreover, the company’s high-debt profile remains a concern. Exiting third-quarter 2020, its long-term debt stood at $17,687 million, reflecting an increase of 0.5% on a sequential basis. Further, rise in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks are Danaher Corporation (DHR - Free Report) , Raven Industries, Inc. (RAVN - Free Report) and Applied Industrial Technologies, Inc. (AIT - 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 has a trailing four-quarter earnings surprise of 17.00%, on average.

Raven has a trailing four-quarter earnings surprise of 126.84%, on average.

Applied Industrial has a trailing four-quarter earnings surprise of 14.68%, on average.

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