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Honeywell (HON) Exhibits Strong Prospects, Endures Risks

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Honeywell International Inc. (HON - Free Report) stands to gain from its presence in diverse end markets that allows it to neutralize risks associated with a single market. In the quarters ahead, strength in Honeywell’s end markets, including air transport, business aviation, productivity solutions and others, are likely to aid the stock. Also, recovery in its defense and space business, supported by stable U.S. and international defense spend volumes, is likely to drive the company’s performance in the days ahead.

Honeywell follows a balanced capital-allocation strategy, which enables it to utilize the cash flow for acquisitions. Its US Digital Designs buyout in January 2022 is expected to strengthen its product offerings for improving public safety communications. The buyout of Performix (September 2021) has been enhancing its advanced portfolio of automation solutions. Also, it acquired Sparta Systems in April 2021, which strengthened HON’s position in the industrial automation, digital transformation, and enterprise performance management solutions space.

Honeywell focuses on rewarding its shareholders through dividend payments and share repurchases. In the first three months of 2022, HON used $668 million for paying out dividends to its shareholders and bought back shares worth $1,018 million. In October 2021, the quarterly dividend rate was hiked 5.4%.

However, softness across Honeywell’s personal protective equipment and warehouse automation businesses on account of a low-demand environment has been adversely impacting its performance. Also, suspended business operations in Russia are likely to continue affecting the company’s UOP business in the near term.

Challenges related to escalating costs and expenses pose a concern. While the company’s cost of sales was relatively flat year over year, selling, general and administrative expenses increased 15.8% in first-quarter 2022. Raw material inflation, supply chain challenges, and labor market challenges played spoilsports in the quarter. If not checked, this might affect the company’s top-line performance in the near term.

Honeywell operates across diverse regions. Its global presence exposes it to various environmental laws and regulations in the countries where it operates. Adverse forex impacted Honeywell’s sales by 2% year over year in first-quarter 2022. In the quarters ahead, HON's overseas business might be negatively impacted by a stronger U.S. dollar.

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In the past six months, this currently Zacks Rank #3 (Hold) stock has dropped 12.1% compared with the industry’s decline of 20.5%.

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Some better-ranked companies from the Conglomerates sector are discussed below:

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Earnings estimates of MMM have increased 5.7% for 2022 in the past 60 days. Its shares have declined 12.1% in the past six months.

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