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Honeywell (HON) to Post Q4 Earnings: Another Beat in Store?

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Honeywell International Inc. (HON - Free Report) is scheduled to report fourth-quarter results on Feb 1, before the opening bell.

The company delivered average positive earnings surprise of 2.80% in the trailing four quarters. Notably, Honeywell’s third-quarter adjusted earnings of $2.03 per share surpassed the Zacks Consensus Estimate of $1.99 by 2.01%.

In the past month, the company’s shares have returned 7.2% compared with the industry’s rise of 6.9%.

We expect the company to score an earnings beat in the fourth quarter as well.

Why a Likely Positive Surprise

Our proven model shows that Honeywell has the right combination of the two key ingredients to beat earnings. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

This is the case here as you will see below:

Earnings ESP: Honeywell has an Earnings ESP of +0.95% as the Most Accurate Estimate is pegged at $1.90, higher than the Zacks Consensus Estimate of $1.88.

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Likely to Drive Better-Than-Expected Q4 Results

Honeywell believes that prospects in its end markets are bright. The company expects solid commercial aviation original equipment sales to continue bolstering Aerospace segment’s revenues in the fourth quarter. In addition, strength in the Defense & Space business and aerospace aftermarket business on account of solid airlines demand, maintenance service program activity and business aviation are expected to boost the segment’s performance in the to-be-reported quarter.

Continued growth in residential thermal solutions, driven by strong demand in the Americas and Europe regions, are likely to drive top-line performance of the Home and Building Technologies segment in the quarter under review.  Also, the company’s focus on launching new products are likely to drive the revenues of this segment.

For the Performance Materials and Technologies segment, strength in the company's Process Solutions and Advanced Materials businesses coupled with solid short-cycle demand in software, field devices and maintenance and migration services businesses are likely to be tailwinds. Notably, the Zacks Consensus Estimate for the segment's fourth-quarter revenues is currently pegged at $2,954 million, higher than $2,854 million reported a year ago.

For Safety and Productivity Solutions, broad-based growth across all business lines, backed by strong growth in orders and sturdier demand for new Android-based mobility product offerings are likely to drive sales growth.

As a matter of fact, the company expects to generate organic sales growth within the range of 5-6% in the fourth quarter. The company’s performance is likely to generate margin expansion of 60-80 basis points.

Notably, the Zacks Consensus Estimate for fourth-quarter operating profit of Honeywell's Performance Materials and Technologies and Safety and Productivity Solutions segments are pegged at $658 million and $264 million, respectively, higher than $607 million and $231 million recorded in the prior-year quarter. However, the consensus estimate for Aerospace and Home and Building Technologies segments’ fourth-quarter operating profit is pegged at $789 million and $330 million, respectively, lower than $893 million and $461 million reported a year ago.

Other Key Picks

Here are some other companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Griffon Corporation (GFF - Free Report) carries a Zacks Rank #3 and has an Earnings ESP of +37.50%. You can see the complete list of today’s Zacks #1 Rank stocks here.

ITT Inc. (ITT - Free Report) has an Earnings ESP of +0.45% and a Zacks Rank #3.

Emerson Electric Co. (EMR - Free Report) carries a Zacks Rank #3 and has an Earnings ESP of +0.84%.

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