Fri Earnings Watch: Honeywell... the Industrials Player

Equities 2 minutes to read

Kay Van-Petersen

Global Macro Strategist

Summary:  Fri Earnings Watch: We take a preview of what is expected the $120bn industrial player Honeywell. A name that could become that more central to investors portfolios for those looking to play or add to the reflation & infrastructure themes. Honeywell is also a member of the broader industrials etf, XLI. And similar to the etf, has vastly underperformed the +38% & +12% YTD runs that we have seen in Deere & Co [DE] & Caterpillar [Cat]. Both HON & XLI are down YTD at -2.50% & -0.60% respectively. Could we see some PE interest into some of these industrial names (Hon has $15bn of cash & very low gearing with a NetDebt/EBITDA ratio of c. 1x) over the next few quarters?


(These are solely the views & opinions of KVP, & do not constitute any trade or investment recommendations. By the time you synthesize this, things may have changed.)

Fri Earnings Watch: Honeywell... the Industrials Player

  

HON: $172.61 Last, $120 bn Mkt Cap, -2.5% YTD,  P/E 22, 3Q Est. +$1.49 EPS, Rev $7.7bn

  • A behemoth in the global manufacturing & industrials space, US based Honeywell [Hon] has a market cap north of $120bn, +$15bn in CE on its BS, employs over 100,000 people & in 2019 returned $6bn in profit, on c. $36.7bn of revenue.

  • Its worth noting the company also has a dividend yield of +2% & had increased dividend last year by +10%. In a low yield regime, profitable & stable business that can increase dividends sustainably are worth looking into.

  • From a leverage perspective it Net Debt/EBITDA is well in the conservative range at c. 1.0x, potentially leaving them optionality to leverage up in the low yield environment for expansion & growth once (likely question of when, not if) we get a US Fiscal Infrastructure bill.

  • The latter if it comes about from the current administration, literally needs to happen over the rest of Oct. Otherwise if it’s a Biden administration coming in, we may have to wait until back-end of Jan / start of Feb at the earliest.

  • To be honest, KVP is surprised we have not seen more private equity players look to take out names like Honeywell – so they can leverage the balance sheet & ride the macro wave of fiscal spend that is on the horizon. They are sitting on excessive cash piles & yields on bonds are only heading one way, down.

  • The 12m consensus price target is c. $175, which is where the price is currently trading at. There analyst price target range is from  144 to 198. There are c. 68% buys in the name, vs. 0% sells with the balance being holds at 32%.

  • The name is c. -3% YTD, with a +73% jump from the Mar lows of $99.78.

  • This overall performance is not too different from the broader industrial etf, XLI – a name to keep on the watching list for the reflation & infrastructure themes, be you a bull or a bear. Other names like Deere [DE] & Caterpillar [CAT] are on fire in the industrials space, up +38% & +12% YTD.

  • 1yr earning growth are expected to be +14% for 2021 (-15.7% for 2020 year). For current quarter earnings, +$1.49 EPS is expected vs. revenues of $7.7bn.

  • Honeywell’s Previous Quarterly Report on 24 Jul 2020

  • Honeywell’s IR Portal


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Not Caught Enough of KVP?…

  • From c. 52min in KVP talking on DollarYen on Bloomberg’s Daybreak This will resonate with the 4Q20 piece, where a high conviction structural trade view from KVP’s camp is being short DollarYen, seeing 85 – 95 range by back-end of 2021 & potentially 100 to high 90s by end of 2020. Naturally this gels with the multi-year dollar bearish regime view & also note how strong the North Asia Currencies have been of late, USDCNH, USDKRW, USDTWD

  • Country 1.0 And How to Edit Inequality Out of the Equation with Kay Van-Petersen Could have gone on for days here! :) Bottom line AI, ML & Tech integration is literally the highest probability pathway for a sustainable earth with humans as a species continuing to be part of the eco system

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Start-to-End = Gratitude + Integrity + Vision + Tenacity | Process > Outcome | Sizing > Idea

This is the way 

KVP

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