Honeywell International (HON Quick QuoteHON - Free Report) is backed by multiple tailwinds despite some volume softness due to supply-chain disruptions. While raw material cost inflation poses a threat to the bottom line, pricing actions augur well for the company’s top-line growth.

Strength in long-cycle businesses is driving growth in Honeywell’s commercial aviation, building products, advanced materials and UOP businesses. Despite cost inflation, pricing actions and cost-control measures are driving the company’s margin performance. For 2022, operating margin expanded 10 basis points (bps) year over year while the segment margin expanded 70 bps. For 2023, the company expects a segment margin of 22.2-22.6%, indicating a year-over-year rise of 50-90 bps.

This Zacks Rank #3 (Hold) company’s bullish 2023 guidance holds promise. For 2023, the company expects sales of $36-$37 billion, which reflects an organic sales growth of 2-5%. The company anticipates adjusted earnings of $9.35-$9.75 per share, indicating a year-over-year increase of 7-11%. The company expects moderation in raw material inflation (thanks to deceleration in inflation) and improved supply chains to drive top-line growth in 2023.

While Honeywell’s Safety and Productivity Solutions segment is experiencing weakness due to lower personal protective equipment and warehouse automation volume, its Aerospace segment is witnessing robust growth on the back of strong commercial aftermarket demand. Continued improvement in flight hours, especially in wide body, should continue to drive the segment’s performance. For 2023, the company expects segmental organic growth to be in the high single-digit to the low double-digit range.

Strength in advanced materials business and UOP operations is fueling growth of HON’s Performance Materials and Technologies (PMT) segment. An improvement in the process technologies business, which returned to growth in the fourth quarter, robust catalyst shipments and demand for energy capacity should drive the PMT segment’s growth in 2023. Within PMT, growth in the advanced materials business is expected to continue owing to strong demand for solstice products. For 2023, the company expects sales to improve in the mid-single digits for PMT.

Honeywell has been committed to handsomely rewarding its shareholders through dividends and share buybacks. In 2022, HON rewarded shareholders with $2.7 billion in dividends and $4.2 billion in share buybacks. The quarterly dividend rate was hiked by 5.1% in September 2022. Strong free cash flow generation supports the company’s shareholder-friendly activities. The company expects an operating cash flow of $4.9-$5.3 billion for 2023, while the free cash flow is anticipated to be $3.9-$4.3 billion.

Backed by these tailwinds, shares of Honeywell have gained 8.1% in a year, outperforming the industry’s 4.2% decline.

Image Source: Zacks Investment Research

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