VALUATION HIGHLIGHTS

1. Aircraft & Automotive Components constitute 51% of the Trefis price estimate for Honeywell's stock.
2. Process Solutions & Performance Materials constitute 26% of the Trefis price estimate for Honeywell's stock.
3. Building & Safety Products constitute 23% of the Trefis price estimate for Honeywell's stock.

WHAT HAS CHANGED?

1. HON Stock vs. S&P 500 Performance

The performance of HON stock with respect to the index has been quite volatile. Returns for the stock were 0% in 2021, 5% in 2022, 0% in 2023, and 10% in 2024.

In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that HON underperformed the S&P in 2021, 2023 and 2024.

2. Q4 2024 Performance

Honeywell reported its Q4 2024 results with revenue of $10.1 billion, up 7% y-o-y, led by a 9% rise in Aerospace and a 20% rise in Building Automation, partly offset by a 1% fall in the Industrial Automation segment sales. The company's adjusted earnings per share of $2.47 was 8% below the $2.69 figure seen in the prior-year quarter. The company has also provided its full-year 2025 outlook, with revenue estimated to be around $40.1 billion and EPS of $10.30 (at the mid-point of their range).

3. Spin off of Businesses

In its bid to move away from the consumer and distribution-facing businesses, Honeywell, in 2018, spun off its homes and ADI Global Distribution business, which included residential thermostats and security and fire-protection products, and generated annual revenue of $2.5 billion. The transportation business, which used to be a portion of the company's aerospace unit, used to serve the auto industry primarily, focused on turbocharger technologies, generating an annual revenue of $3 billion.

4. Recent Acquisitions

Honeywell completed the acquisition of Carrier's Global Access Solutions business for $4.95 billion in 2024. This will help the company strengthen its building automation offerings.

Honeywell acquired CAES Systems Holdings for $1.9 billion in 2024, bolstering its defense technology solutions offerings.

It also acquired Air Products' liquefied natural gas process technology and equipment business for $1.8 billion in 2024, bolstering Honeywell's energy transition capabilities.

BUSINESS SUMMARY

Honeywell International Inc. (Honeywell) is a diversified technology and manufacturing company. It offers aircraft engines, avionics, and other related products and services; control, sensing and security technologies for commercial and residential use; automotive turbochargers, specialty chemicals, electronic and advanced materials; process technology for the refining and petrochemical industry; and heating, ventilation, and air conditioning products and solutions for homes and businesses.

The company has a global presence and generates 40% of its net sales from outside the U.S.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

• Aerospace EBITDA Margin: Honeywell's Aerospace EBITDA Margin improved consistently from 23.8% in 2018 to 26.8% in 2024, primarily due to higher sales of aircraft engines and equipment to the commercial aircraft market. This scale-up has, in turn, reduced the average costs significantly. Implementation of the Honeywell Operating System has also enabled margin improvement due to the efficient utilization of resources. If Honeywell's sales to the U.S. defense sector increase, it would add to its present production volume and lead to further improvement in margins. Should this occur, and margins exceed 37% versus our forecast of around 30% by the end of the Trefis forecast period, there could be a potential upside of over 10% to the current price estimate.

SOURCES OF VALUE

We consider Honeywell's Aircraft Engines, Avionics, Transportation Systems & Others division to be a major source of value for the company because of the following reasons:

Innovative products enable Honeywell to strengthen its position in the market

Honeywell's high research and development expenditure enables it to consistently introduce new and innovative products for the aerospace industry. Such products help increase efficiency of the aircraft and also make it easier to operate. These products continually see high demand since airline manufacturers prefer to equip their new aircraft and upgrade their old ones with the most advanced engines and equipment.

Strong position in the commercial aircraft market

Honeywell has been a strong player in the commercial aircraft market, supplying major commercial aircraft such as Airbus A320 and Boeing 737 Max. With the commercial aircraft market expected to grow at a steady pace in the next 20 years, Honeywell should be able to derive strong growth from its exposure to this market.

With the grounding of the 737-Max, there was a marginal decline in revenue attained from Boeing in recent years. However, Boeing has now resumed the production of this aircraft.

KEY TRENDS

Expansion and replacement of fleet will drive growth in the aircraft industry

Airlines are presently involved in expanding their fleet size in order to support the growing demand for air travel. Additionally, airlines are replacing their old aircraft with new ones that are equipped with more advanced technologies and more efficient engines in order to save on fuel costs. Because of these trends, Boeing estimates that around 37,000 new airplanes, amounting to $5 trillion, will be delivered over the next 20 years. This provides a huge opportunity for aircraft parts and engines that are manufactured by Honeywell.

That said, airline orders slowed down considerably due to a slump in the market during the pandemic. However, as seen by the orders placed with Boeing and Airbus, the trend reversed in recent years.

Developing markets such as China, India, and Indonesia will be the fastest growing markets in Asia due to the rapid economic growth, greater product availability, and high demand for cooling systems, which will drive sales of HVAC equipment in these countries. While business has slowed down in China, we expect the slump to be temporary.