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Honeywell (HON) Exhibits Strong Prospects, Edgy About Headwinds

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Honeywell International Inc. (HON - Free Report) stands to benefit from a solid momentum in its defense and space business, supported by stable U.S. government defense budgets. For 2021, the company anticipates organic growth in the defense and space business to be flat to up in low-single digits.

Also, strong demand for warehouse automation products and robust backlog level are likely to support its Intelligrated business. For the ongoing year, it expects overall revenues in the range of $34-$34.8 billion with organic revenues projected to be up 3-5% from the year-ago reported figure.

Further, the company’s Sparta Systems buyout (in April 2021) is predicted to strengthen its position in the digital transformation, industrial automation and enterprise performance management solutions space. Moreover, the Ballard Unmanned Systems takeover (October 2020) is steadily enhancing its prospects in the unmanned aerial systems market. This apart, its Rocky Research acquisition (October 2020) continues to bolster prospects of its existing offerings in the energy storage, power and thermal management, and power-generation arenas.

Moreover, its solid cash flow position aids its progress. For 2021, Honeywell expects free cash flow between $5.2 billion and $5.5 billion. In addition, it remains committed to rewarding its shareholders through share buyback programs and dividend payouts. Notably, in first-quarter 2021, the company repurchased shares worth $822 million and paid out dividends of $640 million. Further, in September 2020, it hiked its quarterly dividend by 3.3%.

On the flip side, persistent headwinds across its commercial original equipment business on account of lower air transport and challenged original equipment build rates are likely to relentlessly affect its near-term performance. Also, low international air-transport flight hours due to the coronavirus issues might hurt its commercial aftermarket business potential.

In addition, the company’s high-debt profile remains concerning. Exiting the March quarter, its long-term debt was $16,124 million, reflecting an increase of 39.7% on a year-over-year basis. Any further rise in the debt levels can deteriorate the company’s financial obligations.

In the past year, the presently Zacks Rank #3 (Hold) company has gained 47.7% compared with the industry’s growth of 46.3%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Key Picks

Some better-ranked stocks from the same space are Griffon Corporation (GFF - Free Report) , Crane Co. (CR - Free Report) and ITT Inc. (ITT - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Griffon delivered an earnings surprise of 50% in the last reported quarter.

Crane delivered an earnings surprise of 26.72% in the last reported quarter.

ITT delivered an earnings surprise of 21.84% in the last reported quarter.

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