EADSY - Honeywell: Growth Re-Acceleration Can Drive Stock Higher

2024-05-29 15:24:38 ET

Summary

• Honeywell is well-positioned for growth in the near and long term, with a healthy backlog and strong demand in the Aerospace business.
• Improving supply chain conditions and a recovery in short-cycle business should also aid growth.
• Honeywell's margin expansion prospects are positive, with operating leverage and productivity initiatives expected to improve margins.

Investment Thesis

I last covered Honeywell International ( HON ) in October last year with a buy rating. While the stock has given a total return of ~10% since then, I continue to see further upside. Honeywell is well positioned to deliver good growth in the near term as well as in the long term. The company’s revenue should benefit from a healthy backlog level of $32 billion exiting Q1 2024, and strong demand in the long-cycle Aerospace business. In addition, good backlog conversion thanks to easing supply chain challenges, and near completion of inventory destocking within its short-cycle aero business should also support revenue growth. I believe these tailwinds should accelerate growth in the back half of the current year and in FY25. In the medium to long-term, demand from megatrends like reshoring, automation, energy transition, and sustainability within its non-aero business, and bolt-on M&A should also benefit the company’s revenue growth....

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