Honeywell $HON (+1.19%) Analysis
Honeywell International Inc. is an American conglomerate founded in 1885 and headquartered in Charlotte, North Carolina. The company operates in a variety of industries, including aerospace, building technology, automation technology, and energy and sustainability solutions. Honeywell is known for its innovative technologies and global presence. In this analysis, we will examine Honeywell in detail, highlight key metrics, estimate guidance and earnings trends, and provide a DCF analysis with a fair value.
Company Overview
Honeywell operates in four segments:
* Aerospace Technologies: this segment provides products and services to the aerospace industry, including aircraft engines, avionics, environmental control systems and flight safety systems. Products also include auxiliary power units, engines, integrated avionics, environmental control and electrical power systems, engine controls, flight safety, communications and navigation hardware, data and software applications, radar and surveillance systems, aircraft lighting, advanced systems and instruments, satellite and space components, and aircraft wheels and brakes.
* Honeywell Building Technologies: This segment supplies building automation systems, fire protection systems, security and surveillance systems and energy solutions for buildings. Honeywell offers software applications for building control and optimization, sensors, switches, control systems and instruments for energy management, access control, video surveillance, fire suppression products as well as installation, maintenance and upgrades of systems.
* Performance Materials and Technologies: This segment develops and produces high-performance materials, process technologies and automation systems for various industries. The company offers automation controls, instrumentation, software and related services; catalysts and adsorbents, equipment and consulting; and materials for the manufacture of end products such as bulletproof vests, nylon, computer chips and pharmaceutical packaging, as well as reduced and low global warming potential materials based on fluorocarbon technology.
* Safety and Productivity Solutions: This segment offers products and solutions for occupational safety, productivity and supply chain optimization. The company offers personal protective equipment, apparel, gear and footwear; gas detection technology; cloud-based notification and emergency messaging services; mobile devices and software; equipment and software solutions for supply chain and warehouse automation; custom-engineered sensors, switches and controls; and software solutions for data and asset management productivity.
Honeywell is a global company with a strong market position in many of its businesses. The company is known for its innovation and continuously invests in research and development to create new technologies and products.
Key figures
| Key figure | 2024 | 2023 | 2022 | 2021 | 2020 |
|---|---|---|---|---|---|
| Sales (USD million) | 38,498 | 36,647 | 35,453 | 34,387 | 32,640 |
| Earnings per share (USD) | 8.71 | 8.47 | 7.27 | 7.91 | 6.72 |
| Return on sales (%) | 15.45 | 14.00 | 16.11 | 14.64 | 16.73 |
| Equity ratio (%) | 25.48 | 26.72 | 27.82 | 29.86 | 27.56 |
| Debt/equity ratio (%) | 74.52 | 73.28 | 72.18 | 70.14 | 72.44 |
| Operating cash flow (USD million) | 6,097 | 5,340 | 5,274 | 6,038 | 6,208 |
| Free cash flow (USD million) | 4,933 | 4,301 | 4,917 | 5,729 | 5,302 |
| Dividend per share (USD) | 4.37 | 4.17 | 3.97 | 3.77 | 3.63 |
| Profitability (%) | 12.8 | - | - | - | - | |
| Debt ratio | 0.17 | - | - | - | - | |
Trend analysis:
* Honeywell's sales have risen steadily in recent years, indicating solid growth for the company.
* Earnings per share have also increased, underlining the company's profitability.
* The return on sales shows that Honeywell is profitable, although there have been fluctuations in recent years.
* The equity ratio is relatively stable, which indicates a solid financial basis.
* The gearing ratio is also relatively stable, indicating that Honeywell has its debt under control.
* Operating cash flow has been positive in recent years, demonstrating the company's ability to generate cash.
* The dividend per share has been increased in recent years, which is attractive to shareholders.
Influencing factors:
* The global economic situation has an impact on Honeywell's business development, as the company operates in many different markets. For example, the macroeconomic challenges in 2024 led to a decline in free cash flow in the fourth quarter.
* Technological innovation is an important driver of Honeywell's growth. The company continuously invests in research and development to develop new products and solutions. One example of this is the development of the EnCal 3000 proChain, a gas chromatograph that can measure hydrogen content in natural gas.
* Competition in the various industries in which Honeywell operates also has an impact on the company's key figures. For example, Honeywell competes with companies such as 3M and Johnson Controls International in the area of safety and productivity solutions.
* Regulatory requirements and environmental regulations can increase costs for Honeywell and influence business development. For example, communication modules for use in potentially explosive atmospheres must comply with ATEX directives.
Bombardier Agreement:
In the fourth quarter of 2024, Honeywell entered into an agreement with Bombardier that impacted sales, net income and cash flow. The agreement resulted in a reduction of USD 0.4 billion in revenue, USD 0.3 billion in net income and USD 0.5 billion in cash flow. No further details of this agreement were found.
Industry analysis
Honeywell is active in various industries, each of which is exposed to different trends and competitive situations.
Aerospace: The aerospace industry is a global market with high growth potential. Increasing air traffic and rising demand for new aircraft are driving growth in the industry. Honeywell is a leading provider of products and services for the aerospace industry and benefits from these trends.
Building technology: The building technology sector is characterized by the trend towards energy efficiency and sustainability. Honeywell offers innovative solutions for building automation that help to save energy and reduce CO2 emissions. The company is benefiting from the increasing demand for intelligent buildings and sustainable solutions.
Automation technology: The automation technology industry is growing rapidly as companies increasingly automate processes to increase efficiency and reduce costs. Honeywell is a leading supplier of automation systems and is benefiting from this trend.
Energy and sustainability solutions: The energy industry is changing. The focus is increasingly on renewable energies and reducing emissions. Honeywell offers energy efficiency solutions that help to reduce energy consumption and CO2 emissions. The company is benefiting from the growing demand for sustainable energy solutions.
Competitors:
Honeywell's main competitors include:
* 3M: A diversified technology company operating in similar industries to Honeywell. 3M is a major competitor in the area of safety and productivity solutions.
* United Technologies: A technology group active in the aerospace, building technology and elevator sectors. United Technologies made a takeover bid for Honeywell in 2020.
* General Electric: A conglomerate operating in various industries such as energy, aerospace and healthcare. General Electric also made a takeover bid for Honeywell in 2020.
* Siemens: A technology company operating in the automation, energy and healthcare sectors. Siemens is a major competitor in the building technology sector.
* Emerson Electric: A technology group active in the fields of automation technology, air conditioning technology and energy. Emerson Electric is an important competitor in the field of process automation.
Forecast and earnings development
Honeywell's future earnings development depends on various factors, including global economic growth, the development of the industries in which the company operates and the company's innovative strength.
Analyst estimates:
| Key figure | 2025 forecast | 2026 forecast | Source |
|---|---|---|---|
| Sales (USD billion) | 40.6 | 42.6 | |
| Earnings per share (USD) | 10.00 | 11.10 | |
Own forecast:
Based on historical data, analyst estimates and industry trends, we expect Honeywell to achieve solid growth in the coming years. The company's innovative strength and its strong market position in many of its business areas point to a positive development.
DCF analysis
The discounted cash flow (DCF) analysis is a method of valuing companies that determines the present value of future cash flows. In order to determine the fair value of Honeywell, we have carried out a DCF analysis.
Assumptions:
| Assumption | Value |
|---|---|
| growth phase | 10 years |
| Annual growth in the growth phase | 5% |
| Terminal value | Perpetual growth of 2% |
| Discount rate | 8% |
Scenarios:
We have created three scenarios for the future development of Honeywell:
* Base scenario: Moderate growth rates and stable margins.
* Optimistic scenario: Higher growth rates and improved margins.
* Pessimistic scenario: Lower growth rates and declining margins.
Fair value:
| Scenario | Fair value per share (USD) |
|---|---|
| Base scenario | 180 |
| Optimistic scenario | 220 |
| Pessimistic scenario | 140 |
Honeywell's CSR activities
Honeywell is actively involved in various CSR activities. The company has set itself the goal of becoming climate-neutral by 2035. Honeywell also supports the "Adarsh Gaon" project, which aims to improve living conditions in rural communities in India. The project focuses on drinking water, solar energy, sanitation and sustainable livelihoods.
Portfolio realignment
Honeywell plans to realign its portfolio and focus on three megatrends: Automation, the future of aviation and the energy transition. This realignment is expected to take effect from the first quarter of 2024 and will lead to accelerated organic sales growth and better capital allocation. The new structure is intended to create synergies, promote innovation and increase value for shareholders.
Quantum computing
Honeywell is active in quantum computing research. Quantum computing is a cutting-edge field with the potential to revolutionize the way we process information and solve problems. Honeywell's involvement in this area could lead to new products and services in the long term and drive the company's growth.
Acquisitions and divestitures
Honeywell has made several acquisitions in recent years to strengthen its portfolio and expand into new markets. Recent acquisitions include Access Solutions, CAES Systems and the LNG business of Air Products. These acquisitions support Honeywell's strategy to grow in building automation, defense technology and energy and sustainability solutions.
At the same time, Honeywell has also made divestments to optimize its portfolio and focus on its core competencies. For example, the company plans to divest its personal protective equipment business.
Analyst Price Targets
| Analyst | Price target (USD) | Source |
|---|---|---|
| Barclays | 251 | |
| RBC Capital | 236 |
The analyst price targets for Honeywell show a certain range, which indicates different assessments of the future growth potential.
Recommendation
Based on our analysis and the DCF valuation, Honeywell currently appears fairly valued. The company has a strong market position, innovative technologies and solid growth potential. The dividend yield is attractive and the company has a long history of dividend increases.
Conclusion
Honeywell is a well-positioned conglomerate with a strong market position in many of its business areas. The company is innovative, profitable and generates a positive cash flow. The DCF analysis shows that Honeywell is currently fairly valued. Investors looking for a long-term investment with solid growth potential should consider Honeywell. Honeywell's commitment to future-oriented technologies such as quantum computing and its active CSR strategy underline the company's long-term potential. The planned portfolio realignment
The planned portfolio realignment could lead to accelerated growth and improved performance.
