On Aug 23, we updated the research report on industrial goods manufacturer, Honeywell International Inc. (HON - Free Report) .
With a flexible yet disciplined focus on cost and productivity, Honeywell aims at increasing its presence in high-growth regions. Population growth, urbanization and infrastructure development continue to create attractive opportunities across its entire portfolio. The company’s balanced mix of long- and short-cycle businesses, along with a decent organic growth in new products and expansion in high-growth regions augur well on a long-term perspective. Additionally, the company is building a robust pipeline of new products.
Honeywell has regularly fine-tuned its portfolio, having sold about 60 of its units (accounting for $7 billion in sales) since 2002 and acquiring another 90 companies contributing $14 billion in revenues over the same period. The focused approach bodes well for Honeywell’s growth in 2017.
The company has outperformed the industry with an average year-to-date return of 18.2% against a decline of 3% for the latter. Honeywell’s diversified business portfolio has the potential to earn consistent above-average returns and mitigate operating risks. The company’s diligent focus on working capital management, free cash flow generation and a conservative balance sheet remain key positives amid a challenging macroeconomic environment.
However, Honeywell expects a tepid demand pattern for its business jets and mobile scanners in 2017 due to sluggish global growth, volatility in crude oil prices and a tempered Chinese economy. Consequently, the company projects 2017 earnings in the range of $6.90-$7.10 per share while revenues are anticipated to be down 1% to up 2% year over year. Although the company’s proactive restructuring initiatives have positioned it to navigate better than many of its peers, it is yet to witness signs of stabilization in a number of its major end markets. A change in the U.S. government’s defense and aerospace funding could also adversely impact sales of Aerospace’s products and services. The high research and development costs could also be a drag on the Aerospace segment margin and affect its profitability.
Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the industry include Barnes Group Inc. (B - Free Report) , Graco Inc. (GGG - Free Report) and RBC Bearings Incorporated (ROLL - 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.
Barnes has a long-term earnings growth expectation of 9%.
Graco has a long-term earnings growth expectation of 10.5%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 23.95%.
RBC Bearings has a long-term earnings growth expectation of 8.4%. It topped estimates in each of the trailing four quarters with an average positive earnings surprise of 4.71%.
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