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Honeywell Reiterated at Outperform

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We maintain an Outperform recommendation on Honeywell International Inc. (HON - Free Report) .

The company had a robust first quarter 2012 performance, outperforming its earnings expectations. Despite the prevailing challenging macro environment, the company’s top-line growth was reasonably good.

Sales growth in the US was a driving factor for the company. Three of the four business segment posted revenue growth, out of which Commercial aerospace and UOP businesses performed exceptionally well. The company expects to deliver solid results in 2012, despite the prevailing macro uncertainty.

The positive outlook is driven by the company’s strong hold in good industries and continuous effort to undertake new ventures. In order to expand further, the company remains focused on its growth factors, i.e. investments in new products, technology demarcation, expansion in the emerging markets and initiatives in key processes. Honeywell’s growth is supported by its five Initiatives – growth, productivity, cash, people, and enablers.

Honeywell’s attractive collection of businesses has the potential to earn consistent above-average returns. The company’s focus on working capital management, free cash flow generation and balance sheet strength remain positive attributes in the current weak environment.

Further, Honeywell’s short-cycle businesses as well as its commercial aerospace spares and residential and commercial retrofit businesses are performing impressively well and are expected to support the company’s future growth outlook.

During the first quarter of 2012, the company funded nearly $25 million in repositioning projects, which are expected to deliver good benefits in 2012. Earnings from continuing operations for the quarter increased 21%, above the company’s expectations, driven by strong sales conversion and increased sales.

However, the Transport segment during the reported quarter was affected by lower European vehicle production and lower aftermarket sales volume. Short cycle businesses in Europe were also weak during the quarter.

Further, the Energy, Security and Safety sales were affected in China due to decline in infrastructure investments and low construction in commercial sector. Conditions are expected to improve slightly in the second half of 2012. Competition also is a factor of concern, as Honeywell operates in a highly competitive industry which has limited players, but all of which are well financed.

Honeywell International is a diversified technology and manufacturing company serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers, automotive products, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals and energy efficient products and solutions for homes, business and transportation.

The major competitors of Honeywell are BorgWarner Inc. (BWA - Free Report) , United Technologies Corp. (UTX - Free Report) and Johnson Controls Inc. (JCI - Free Report) .

Honeywell currently has a Zacks #1 Rank (Strong Buy recommendation) over the next one to three months.

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