Up 5% In A Week Does Honeywell Stock Have More Room For Growth?

Honeywell (NYSE: HON) stock has seen a rise of 5% in a week, faring better than its peer — General Electric stock – down 3%. The rise in HON stock in recent days can partly be attributed to the company’s revision of its outlook for the full-year 2024 following its acquisition of Carrier’s Global Access Solutions business. Honeywell now expects its sales to be in the range of $38.5 billion to $39.3 billion, compared to its prior guidance of $38.1 billion to $38.9 billion. The company expects a $0.50 per share impact on the bottom-line due to this acquisition. It now expects earnings to be in the range of $10.15 and $10.45. This has boded well for its stock. However, looking at a slightly longer term, HON stock has seen little change, moving slightly from levels of $215 in early January 2021 to around $205 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period.

Overall, the performance of HON stock with respect to the index has been quite volatile. Returns for the stock were -2% in 2021, 3% in 2022, and -2% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that HON underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and RTX, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could HON face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we think HON stock has little room for growth. We estimate Honeywell’s Valuation to be $227 per share, less than 10% above the current market price of $207. This represents a 22x P/E multiple based on our EPS estimate of $10.28 for Honeywell in 2024. The 22x figure aligns with the stock’s average P/E multiple over the last three years.

Honeywell’s revenue growth will benefit from its recent $4.95 billion acquisition of Carrier’s Global Access Solutions business, which includes strong brands, including LenelS2, Onity, and Supra. These brands will complement Honeywell’s existing building automation business. This segment has seen its sales rise at an average annual rate of 5.2% from $5.2 billion in 2020 to $6.0 billion in 2023. Overall, this acquisition is a positive for Honeywell, given it will be earnings accretive in the first year itself. However, from the stock’s perspective, we think it has little room for growth, even after considering the revised earnings outlook.

While HON stock appears to have little room for growth, it is helpful to see how Honeywell’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 6/5/2024
[2] Cumulative total returns since the end of 2016

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