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Category: Stock Market and Honeywell (HON)
Date: 1 November 2020 Stock Price of Honeywell: $164.95 We take a look at the 3rd quarter earnings release of their 2020 fiscal year of Honeywell, a Fortune 100 technology company active in various industries including aerospace, manufacturing plants and supply chains. The group's aerospace division has been hit particularly hard due to the Covid-19 pandemic. The group reported revenues of $7.97 billion and net income of $781 million.
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About Honeywell
Honeywell (www.honeywell.com) is a Fortune 100 technology company that delivers industry specific solutions that include aerospace products and services; control technologies for buildings and industry; and performance materials globally. Our technologies help everything from aircraft, buildings, manufacturing plants, supply chains, and workers become more connected to make our world smarter, safer, and more sustainable.
Overview of Honeywell's 3rd quarter 2020 earnings report
The numbers we are interested in (for the quarter):
- Net sales: $7.797 billion (down from $9.086 billion from the same quarter of the previous year)
- Net sales decreased by -4.7% over the last 12 months
- Costs and expenses: $5.384 billion (down from $6.038 billion for the same quarter of the previous year)
- Costs and expenses decreased by -10.8% over the last 12 months
- Net income: $781 million (down from $1.648 billion for the same quarter of the previous year)
- Diluted earnings per share: $1.07 (down from $2.23 for the same quarter of the previous year)
- PE ratio of Honeywell: 25.6
- Diluted weighted-average shares outstanding: 709.6 million (down from 726.7 million for the same quarter of the previous year)
- Cash and cash equivalents: $14.036 billion
- Cash and cash equivalents per share: $19.78
- Cash and cash equivalents makes up 11.9% of Honeywell's market capital
- Cash and cash equivalents makes up 22.1% of Honeywell's total assets
- Inventories: $4.705 billion
- Inventories makes up 7.4% of Honeywell's total assets
- Honeywell's inventories increased by 6.4% over the last 12 months
- Accounts receivable: $6.878 billion
- Accounts receivable makes up 10.8% of Honeywell's total assets
- Stockholders equity of Honeywell: $18.318 billion
- Stockholders equity per share in Honeywell: $25.81
- Honeywell is trading at 6.39 times its stockholders equity which is well outside the expected range of between 2 and 4 which most companies tend to trade at.
- For some perspective the average price to book value of a firm in the S&P 500 is 3.8times.
- Cash generated from operations: $1.007 billion
- Cash generated from operations per share: $1.41
Honeywell's management commentary on their 3rd quarter 2020 earnings
CHARLOTTE, N.C., October 30, 2020 -- Honeywell (NYSE: HON) today announced results for the third quarter of 2020, which improved sequentially versus the second quarter of 2020. The company reported a third-quarter year-over-year sales decline of 14% reported and organic, operating margin contraction of 250 basis points, and segment margin contraction of 130 basis points, with adjusted earnings per share2 of $1.56. “I am pleased with the quarter-over-quarter improvements in sales growth, margin expansion and adjusted earnings per share that we delivered in the third quarter,” said Darius Adamczyk, chairman and chief executive officer of Honeywell. “We continued to focus on driving sales growth in areas that have not been as impacted by the current downturn, including defense and space, warehouse automation and personal protective equipment, all of which grew by double-digits organically year-over-year. Recurring software sales also grew double-digits organically, continuing our transformation to a premier software-industrial company.
“We also focused on aggressively managing cost, and delivered over $450 million in savings in the quarter, bringing our year-to-date total to $1.1 billion. We now expect to generate $1.5 billion to $1.6 billion of cost savings during 2020, up from our previous estimate of $1.4 billion to $1.6 billion,” Adamczyk continued. “Honeywell’s balance sheet remains strong, with $15 billion of cash and short-term investments on hand, and we further enhanced our financial flexibility this quarter by issuing $3 billion of bonds at attractive rates and repaying in full the $3 billion term loan borrowed earlier this year. Capital deployment remains a focus for us. In the third quarter, we resumed opportunistic share repurchases and announced the 11th consecutive increase to our dividend. We also recently announced two acquisitions that will provide emerging technologies in our Aerospace business. I am confident we are well-positioned for the economic recovery.”
“We also focused on aggressively managing cost, and delivered over $450 million in savings in the quarter, bringing our year-to-date total to $1.1 billion. We now expect to generate $1.5 billion to $1.6 billion of cost savings during 2020, up from our previous estimate of $1.4 billion to $1.6 billion,” Adamczyk continued. “Honeywell’s balance sheet remains strong, with $15 billion of cash and short-term investments on hand, and we further enhanced our financial flexibility this quarter by issuing $3 billion of bonds at attractive rates and repaying in full the $3 billion term loan borrowed earlier this year. Capital deployment remains a focus for us. In the third quarter, we resumed opportunistic share repurchases and announced the 11th consecutive increase to our dividend. We also recently announced two acquisitions that will provide emerging technologies in our Aerospace business. I am confident we are well-positioned for the economic recovery.”
Adamczyk concluded, “Last month we celebrated two significant milestones: Honeywell’s 100th anniversary on the New York Stock Exchange and our return to the Dow Jones Industrial Average. Honeywell is a company that has weathered the toughest of times and emerged from them stronger than before. This crisis is no exception. We Adjusted EPS in the headline excludes the impact of a non-cash $350M pre-tax and after-tax charge associated with the reduction in carrying value to present value of reimbursement receivables due from Garrett in relation to Garrett’s September 20, 2020 Chapter 11 bankruptcy filing - MORE - have moved very quickly to introduce new offerings to help people get back to the workplace, back to play, back to travel, and back to life, and I am pleased with the strong demand we are seeing for these solutions. We remain focused on cost management and execution, while also investing in new markets and new technologies that will shape the next 100 years for our customers, shareowners and employees.” Honeywell expects fourth quarter sales of $8.2 billion to $8.5 billion, representing a year-over-year organic sales decline of 11% to 14%; segment margin of 21.1% to 21.3%, down 10 to 30 basis points; and earnings per share of $1.97 to $2.02, down 2% to 4% adjusted. Full-year sales are expected to be in the range of $31.9 billion to $32.2 billion, representing a year-over-year organic sales decline of 12% to 13%; segment margin of 20.4% to 20.5%, down 60 to 70 basis points; and adjusted earnings per share1 of $7.00 to $7.05, down 14%.
Honeywell (NYSE: HON) stock price history over the last 5 years
The image below, obtained from Google, shows the stock price history of Honeywell (NYSE:HON) over the last 5 years. And it's been pretty average time for Honeywell (NYSE:HON) over the last 5 years. 5 years ago the stock was trading at around $105 and its currently trading at $165. That's a return of 58% provided to Honeywell stockholders over the last 5 years.
The stock of Honeywell is trading at a closer to its 52 week low of $101.08 than it is to its 52 week high of $184.06 which to us its an indication that the short sentiment and momentum of Honeywell is negative at this point in time.
The stock of Honeywell is trading at a closer to its 52 week low of $101.08 than it is to its 52 week high of $184.06 which to us its an indication that the short sentiment and momentum of Honeywell is negative at this point in time.
Honeywell (HON) vs 3M(MMM) vs Simpson Manufacturing (SSD) stock over the last 5 years
The image below shows the stock price performance of Honeywell (HON) vs 3M (MMM) vs Simpson Manufacturing (SSD) over the last 5 years. And while all three are active in the manufacturing space, their stock price performances are very different
So over the last 5 years Simpson has been by far the best performer and 3M the worst
- Simpson Manufacturing (SSD): 137.6%
- Honeywell (HON): 58.3%
- 3M (MMM): 1.25%
So over the last 5 years Simpson has been by far the best performer and 3M the worst
Recent coverage of Honeywell
The extract below shows recent coverage of Honeywell as obtained from FXempire.com
Honeywell International Inc, a worldwide technology and manufacturing company, reported a better-than-expected profit in the fourth quarter but said sales were down 14% on a reported and organic basis as the COVID-19-related travel restrictions and a collapse in air travel hit demand. The company which makes parts for planes made by Boeing and Airbus SE said its third-quarter EPS was $1.07. Excluding items, the conglomerate earned $1.56 per share, higher than the market expectations of $1.49 per share.
Aerospace sales for the third quarter fell 25% to $2.66 billion, better than the second quarter’s decline of 28%. That improvement was largely driven by lower commercial aftermarket demand due to the ongoing impact of reduced flight hours and lower volumes in commercial original equipment, partially offset by double-digit growth in Defense and Space, the company said.
Honeywell expects fourth-quarter sales of $8.2 billion to $8.5 billion, representing a year-over-year organic sales decline of 11% to 14%; segment margin of 21.1% to 21.3%, down 10 to 30 basis points; and earnings per share of $1.97 to $2.02, down 2% to 4% adjusted. Full-year sales are forecast to be in the range of $31.9 billion to $32.2 billion, representing a year-over-year organic sales decline of 12% to 13%; segment margin of 20.4% to 20.5%, down 60 to 70 basis points; and adjusted earnings per share of $7.00 to $7.05, down 14%. Honeywell International shares closed 0.21% higher at $164.95 on Friday; however, the stock is down about 7% so far this year.
Read the full article here
Honeywell International Inc, a worldwide technology and manufacturing company, reported a better-than-expected profit in the fourth quarter but said sales were down 14% on a reported and organic basis as the COVID-19-related travel restrictions and a collapse in air travel hit demand. The company which makes parts for planes made by Boeing and Airbus SE said its third-quarter EPS was $1.07. Excluding items, the conglomerate earned $1.56 per share, higher than the market expectations of $1.49 per share.
Aerospace sales for the third quarter fell 25% to $2.66 billion, better than the second quarter’s decline of 28%. That improvement was largely driven by lower commercial aftermarket demand due to the ongoing impact of reduced flight hours and lower volumes in commercial original equipment, partially offset by double-digit growth in Defense and Space, the company said.
Honeywell expects fourth-quarter sales of $8.2 billion to $8.5 billion, representing a year-over-year organic sales decline of 11% to 14%; segment margin of 21.1% to 21.3%, down 10 to 30 basis points; and earnings per share of $1.97 to $2.02, down 2% to 4% adjusted. Full-year sales are forecast to be in the range of $31.9 billion to $32.2 billion, representing a year-over-year organic sales decline of 12% to 13%; segment margin of 20.4% to 20.5%, down 60 to 70 basis points; and adjusted earnings per share of $7.00 to $7.05, down 14%. Honeywell International shares closed 0.21% higher at $164.95 on Friday; however, the stock is down about 7% so far this year.
Read the full article here
Honeywell (NYSE:HON) latest stock valuation
So based on the 3rd quarter 2020 earnings report of Honeywell (NYSE: HON) what do we value Honeywell (HON) stock at? Based on their 3rd quarter 2020 earnings report our valuation models provide a target price (full value price) for Honeywell stock at $124.50 a stock. We therefore believe the stock of Honeywell is slightly overvalued.
We usually advise investors to look to enter a stock at least 10% below our target price (full value price) which in this case is $124.50. So a good entry point into Honeywell would be around $112.00. We expect the stock price of Honeywell will pull back to levels closer to our target price (full value price) in coming weeks and months.
Since the stock of Honeywell is trading at well above our suggested entry point we rate the stock as a sell
We usually advise investors to look to enter a stock at least 10% below our target price (full value price) which in this case is $124.50. So a good entry point into Honeywell would be around $112.00. We expect the stock price of Honeywell will pull back to levels closer to our target price (full value price) in coming weeks and months.
Since the stock of Honeywell is trading at well above our suggested entry point we rate the stock as a sell
Next earnings release of Honeywell
It is expected that Honeywell will release their 4th quarter 2020 earnings report in late January 2021