SIEGY - Honeywell: My Interest Is Perking Up The Value Is Tempting

2024-07-03 17:54:15 ET

Summary

• Honeywell International Inc. has had a challenging stretch of quarters, as Street expectations for the automation businesses (and underlying short-cycle end-market health) were too high, driving a relative derating.
• Aviation, building automation, industrial automation, process automation, and material sciences can all contribute to an above-average mid-single-digit long-term revenue growth rate.
• Management has gotten more active in M&A, but importantly is using M&A to augment and improve existing businesses as opposed to entering new verticals.
• Mid-single-digit revenue growth, strong margins and ROIC, and healthy double-digit FCF growth can support upside for the shares; Honeywell isn't extremely cheap, but it's undervalued relative to other quality industrials.

These are challenging times for multi-industrials, as the Street is starting to accept that short-cycle industrial end-markets may not see the hoped-for recovery in the second half and process end-markets are starting to slow as well. Meanwhile, themes like aerospace seem to be relegated to old news, even though the multiyear revenue and earnings growth potential here is still pretty strong....

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