We Remain Fans of Honeywell’s Shares

Image: Honeywell’s shares have traded sideways for some time, but we still remain fans of its stock.

By Brian Nelson, CFA

On April 25, Honeywell (HON) reported better-than-expected first quarter results. The company’s reported and organic sales increased 3% thanks to strength in ‘Aerospace Technologies’ and ‘Energy and Sustainability Solutions,’ while its operating margin advanced 130 basis points, to 20.4%. Its segment margin expanded 20 basis points, to 22.2%, as its ‘Aerospace Technologies’ division performed well. On an adjusted basis, earnings per share in the quarter came in at $2.25, which was above the high end of its previously released guidance. Honeywell ended the quarter with $32 billion in backlog, a tally that is up 6% on a year-over-year basis.

Honeywell had the following to say about the quarter:

Honeywell delivered a strong start to 2024. Organic growth was led by double-digit growth in both our commercial aviation and defense and space businesses. As long-cycle customer demand remained strong, our robust backlog increased 6% year over year and was up sequentially, ending the quarter at a record level of $32.0 billion. We also experienced pockets of recovery in short cycle, and expect broader participation as the year unfolds and channels normalize further. Improving business mix, continued focus on commercial excellence, and productivity actions enabled us to expand margins in line with the high end of our guidance range and overdeliver on our adjusted earnings per share guidance.

Building on this quarter’s momentum, we are poised for another year of significant transformation at Honeywell as we remain well-positioned to deliver on our commitments and accelerate growth in 2024. Our portfolio is aligned to three powerful megatrends – automation, the future of aviation, and energy transition, all underpinned by digitalization. Looking ahead, I remain confident in our ability to create value as we continue to execute on our M&A playbook and leverage our differentiated Accelerator operating system to unlock the full value of our latest acquisitions, as well as in our core businesses.

Management reaffirmed its guidance for 2024. Full-year sales are expected to be in the range of $38.1-$38.9 billion, with organic sales expansion in the range of 4%-6%. Honeywell is targeting segment margin to be in the range of 23.0%-23.3%, reflecting segment margin expansion to the tune of 30 to 60 basis points. Adjusted earnings per share is expected in the range of $9.80-$10.10, a range that reflects a 7%-10% advance. For 2024, Honeywell is targeting free cash flow of $5.6-$6.0 billion. We liked Honeywell’s quarterly update and remain fans of shares.

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