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Honeywell stock downgraded by Wolfe after nearly 2 decades of outperforming the market

EditorEmilio Ghigini
Published 10/28/2024, 04:40 PM
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On Monday, Wolfe Research adjusted its stance on Honeywell International (NASDAQ:HON), downgrading the stock from Outperform to Peer Perform. The firm cited operational challenges over the past couple of years and a less optimistic outlook for the resolution of these issues within the next year.

The analyst from Wolfe Research reflected on the long-term performance of Honeywell, noting that since their consistent Outperform rating initiated in November 2005, Honeywell's stock has seen an appreciation of approximately 550%. This growth has notably surpassed that of its EE/MI peers and the S&P 500. However, recent times have posed more of a challenge for Honeywell operationally.

According to the analyst's comments, the downgrade was influenced by the current risk/reward balance, which appears to be average when compared to peers. The firm's decision reflects a shift in their expectations for Honeywell's stock performance in the near future.

Wolfe Research's assessment suggests that the headwinds Honeywell has been facing are not likely to be resolved in the short term. This perspective has led to the change in rating, as the firm now views Honeywell's prospects to be on par with its peers rather than outperforming them.

The downgrade represents a significant change in Wolfe Research's outlook on Honeywell, ending a period of nearly two decades where the firm had maintained a positive rating on the stock. Honeywell investors and market watchers will be monitoring the company's performance closely in the coming months to see how it navigates the operational challenges ahead.

In other recent news, Honeywell International Inc (NASDAQ:HON). reported mixed results for its third-quarter earnings. Despite facing challenges such as project delays and supply chain disruptions, the company delivered an 8% year-over-year increase in adjusted earnings per share (EPS), reaching $2.58. However, sales fell short of expectations, partially due to a flat performance in Industrial Automation. The Aerospace segment continued its strong streak with a 10% organic sales increase, marking the ninth consecutive quarter of double-digit growth.

In terms of company changes, CFO Greg Lewis is set to transition to Senior Vice President of Honeywell Accelerator, with Mike Stepniak stepping in as CFO in February 2025. Honeywell also completed four acquisitions in 2024, totaling over $9 billion, and plans to spin off its advanced materials division.

These recent developments indicate Honeywell's strategic focus on future growth, supported by strong order trends and a record backlog of $34 billion. The company revised its full-year 2023 sales guidance to $38.6-$38.8 billion and expects fourth-quarter sales of $10.2-$10.4 billion. Despite the mixed results, Honeywell remains optimistic about its future performance across all business segments.

InvestingPro Insights

While Wolfe Research has downgraded Honeywell International (NASDAQ:HON) due to operational challenges, InvestingPro data offers additional context to the company's financial position. Honeywell's market capitalization stands at $135.25 billion, reflecting its significant presence in the Industrial Conglomerates industry. The company's P/E ratio of 24.03 suggests that investors are still willing to pay a premium for its earnings, despite recent challenges.

InvestingPro Tips highlight Honeywell's strong dividend history, having raised its dividend for 14 consecutive years and maintained payments for 40 years. This consistent dividend policy may provide some reassurance to investors during uncertain times. Additionally, Honeywell's liquid assets exceed short-term obligations, indicating a solid financial foundation that could help the company navigate through its current operational difficulties.

It's worth noting that Honeywell's revenue growth was 3.96% over the last twelve months, with a slight improvement to 5.6% in the most recent quarter. This modest growth, coupled with an operating income margin of 20.89%, suggests that despite challenges, the company continues to generate profits.

For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on Honeywell, providing deeper insights into the company's financial health and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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