Honeywell (HON) has been a darling of a company in the second half of 2012 and is expected to continue its prosperous ways into 2013. Even though it expects revenue growth to be a challenge in 2013, it has committed to grow earnings through increased margins. Analysts have taken notice and continue to look favorably on the stock.
JP Morgan & Co. reiterated its Overweight rating and $70.00 price target on Honeywell International. Here is the analyst's explanation of its outlook: "HON continues to deliver the margin improvement and disciplined M&A we would expect, with better FCF in 2013 freeing up more dry powder into next year. The main debate will be around organic growth: HON was able to put up EPS in line with the consensus despite only a 1-3% growth outlook, but with this revenue outlook lower relative to some peers and, perhaps, expectations. In short, the thesis remains intact with 10% EPS growth for 2013 better than peers' despite a conservative organic outlook."
Sterne Agee is another company that looks favorably on Honeywell with a buy rating and a $69.00 price target. Honeywell has consistently shown how it can grow in key markets and leverage margin gains. This allows the stock to continually achieve results on the upper end of the EPS estimates.
Honeywell's better margins comes as stronger aerospace sales offset the drop in transportation systems sales and the outcome was a 10% earnings growth in the third quarter. This is part of the (margin improvement) JPMorgan was referring to. The company has kept its promise of improving its margins to sustain profit growth through 2013 even though it expects weaker economic growth through 2013 thus having an adverse affect upon revenue growth. Operating margin improved to 13.9% from 10.3%.
Since mid June, the stock has been moving up gaining over 20% in value this year. Recently it showed some mild signs of weakness in November as it moved to the lower Bollinger band. The last time it showed this was at the beginning of September but the band came up to visit the stock. This time the stock went down to touch the band. The stock is still moving up and appears to be bullish as the RSI indicator continues to stay way above the "50" marker. MACD also looks the same. After a low dip below the "0" line, the stock has continued to move up. Presently it still looks like it is moving up even though it may be showing weakness.
Long Term Investing in Honeywell
Honeywell has forecasted growth in sales to around $39.0-$39.5 billion that is 4-5% above 2012. Earnings per share should be 6-10% higher. With analysts believing that Honeywell management is doing an excellent job keeping its promise of higher margins, there is no reason the company cannot be on the high ends of its forecasts just as JPMorgan believes it can. With a modest dividend of 2.6% (Yahoo Finance) the company looks like a good investment for 2013.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.