On Thursday, BofA Securities revised its stance on Honeywell International (NASDAQ:HON), downgrading the stock from Buy to Neutral and adjusting the price target to $230 from the previous $250. The downgrade follows Honeywell's third-quarter earnings report released earlier today, which exceeded expectations and prompted an increase in the full-year forecast due to below-the-line items. However, the company's fourth-quarter operational guide was reduced by an estimated $0.16 at the midpoint.
The analyst noted that the timing of the short-cycle recovery is still uncertain and the performance of long-cycle businesses lacks consistency. Specifically, delays in Honeywell's long-cycle businesses, such as Process Solutions/UOP and Aerospace, were cited as reasons for the lowered operational outlook. This trend of delayed recovery in short-cycle businesses aligns with similar reports from other multi-industrial companies this earnings season.
In response to these factors, BofA Securities has lowered its price objective for Honeywell based on a 14x 2025E EV/EBITDA estimate, a decrease from the prior multiple of 15x, and in contrast to peers trading at 19x. The firm also revised its FY25 forecast for Honeywell, reflecting reduced confidence in the company's ability to achieve the higher end of its long-term growth forecast of 4-7%.
The analyst acknowledged that Honeywell possesses decent assets within its portfolio and mentioned that the appointment of a new CFO in 2025 should aid in messaging and portfolio transformation. Nevertheless, the report suggests that the anticipated turnaround for Honeywell may require more time, and the current valuation offers limited upside potential, justifying the Neutral rating.
In other recent news, Honeywell International Inc (NASDAQ:HON). posted third-quarter earnings that surpassed analyst estimates but fell short in terms of revenue, leading to a revision of its full-year outlook. The industrial conglomerate reported adjusted earnings per share of $2.58, outperforming the consensus estimate of $2.50, while revenue of $9.7 billion missed the expected $9.91 billion.
Consequently, Honeywell lowered its full-year 2024 revenue guidance to a range of $38.6 billion to $38.8 billion, under the previous analyst consensus of $39.2 billion. Despite these developments, the company reported a 3% YoY organic sales growth, largely driven by its defense and space, commercial aviation, and building solutions sectors.
InvestingPro Insights
Honeywell International's recent downgrade by BofA Securities aligns with some of the data and insights provided by InvestingPro. The company's P/E ratio of 23.82 and PEG ratio of 2.91 suggest that the stock may be trading at a premium relative to its near-term earnings growth, which could support BofA's decision to lower its price target and rating.
Despite the downgrade, InvestingPro data reveals some positive aspects of Honeywell's financial health. The company's revenue for the last twelve months stands at $37.33 billion, with a 3.28% growth rate. Additionally, Honeywell boasts a strong dividend history, having raised its dividend for 14 consecutive years and maintained payments for 40 years, as highlighted by InvestingPro Tips.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on Honeywell, providing a deeper understanding of the company's financial position and market performance. These insights could be particularly valuable given the uncertain timing of the short-cycle recovery mentioned in the article.
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