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Two companies with great growth potential are going to be examined in detail and pitted against each other in the hopes of finding a champion. At the end of the article we will offer our opinion as to which one we think is better.

Reasons to be bullish on General Electric (NYSE:GE)

  • It has extremely strong levered free cash flow of $43.3 billion.
  • Beta of 1.57, which makes it a good candidate for covered writes or for selling puts if one is bullish on the stock.
  • Year over year projected growth rates of 20% and 13% for 2012 and 2013 respectively.
  • A decent yield of 3.5%.
  • A good current ratio of 2.5.
  • Net income increased from $11 billion in 2009 to $14 billion in 2011.
  • EBITDA increased from $38 billion in 2009 to $43 billion in 2011.
  • Cash flow per share increased from $2.18 in 2009 to $2.27 in 2011.
  • Annual EPS before NRI increased from $1.16 in 2009 to $1.29 in 2011.
  • A good payout ratio of 51%.
  • A 3-5 year projected EPS growth rate of 12.2%.
  • A good quick ratio of 2.43.
  • A decent interest coverage ratio of 2.41.
  • A decent return of 53% for the past three years.
  • It has been paying dividends since 1889.
  • A free cash flow yield of 12.4%.
  • A very strong levered free cash flow of $43 billion.
  • Percentage held by institutions 54%.

Reasons to be bullish on Honeywell International (NYSE:HON):

  • Net income increased from $1.5 billion in 2009 to $2.06 billion in 2011.
  • Strong levered free cash flow of 2.2 billion.
  • Quarterly earnings growth 16.7%.
  • Quarterly revenue growth 7.3%.
  • Sales Increased from $30 billion in 2009 to $36 billion in 2011.
  • EBITDA increased from $3.3 billion in 2009 to $3.6 billion in 2011, though it dropped slightly from 2010 levels.
  • Net income for the 1st quarter came in at $823 billion; if it maintains this pace, it could exceed 2.5 billion this year.
  • Cash flow per share increased from $4.08 in 2009 to $5.09 in 2011.
  • Annual EPS before NRI increased from $3.16 in 2007 to $3.79 in 2011.
  • A low payout ratio of 36%.
  • A decent yield of 2.6%.
  • Percentage held by institutions is 81%.
  • A 3-5 year projected EPS growth rate of 13.2%.
  • A good five year ROE of 27%.
  • A long-term debt to equity ratio of 0.53.
  • A good interest coverage ratio of 13.5.
  • Year over year projected growth rates of 18% and 12% for 2012 and 2013 respectively.
  • Paying dividends since 1887.
  • Total 3 year return of 88%.
  • $100K invested for 10 years would have grown to $274K.

Company: General Electric

Levered free cash flow= $43.3 billion

Growth

  1. Net Income ($mil) 12/2011 = 14151
  2. Net Income ($mil) 12/2010 = 11644
  3. Net Income ($mil) 12/2009 = 11025
  1. EBITDA ($mil) 12/2011 = 43828
  2. EBITDA ($mil) 12/2010 = 39424
  3. EBITDA ($mil) 12/2009 = 38178
  4. Cash Flow ($/share) 12/2011 = 2.27
  5. Cash Flow ($/share) 12/2010 = 2.1
  6. Cash Flow ($/share) 12/2009 = 2.18
  1. Sales ($mil) 12/2011 = 147300
  2. Sales ($mil) 12/2010 = 150211
  3. Sales ($mil) 12/2009 = 156783
  1. Annual EPS before NRI 12/2009 = 1.16
  2. Annual EPS before NRI 12/2010 = 1.15
  3. Annual EPS before NRI 12/2011 = 1.29

Dividend history

  1. Dividend Yield = 3.6
  2. Dividend Yield 5 Year Average 12/2011 = 4.03
  3. Dividend 5 year Growth 12/2011 = -18.12

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.51
  2. Payout Ratio 5 Year Average 12/2011 = 0.49

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 12.2
  2. EPS Growth Quarterly(1)/Q(-3) = -125.81
  3. ROE 5 Year Average 12/2011 = 13.92
  4. Current Ratio 06/2011 = 2.5
  5. Current Ratio 5 Year Average = 2.25
  6. Quick Ratio = 2.43
  7. Cash Ratio = 0.73
  8. Interest Coverage Quarterly = 2.41

Company: Honeywell Intl

Basic Key ratios

  1. Percentage Held by Insiders = 0.09
  2. Number of Institutional Sellers 12 Weeks = 5
  3. Relative Strength 52 weeks = 60
  4. Dividend 5-year Growth = 7.72
  5. Cash Flow 5-year Average = 4.27
  6. Dividend Yield 5-Year Average = 2.64

Growth

  1. Net Income ($mil) 12/2011 = 2067
  2. Net Income ($mil) 12/2010 = 2022
  3. Net Income ($mil) 12/2009 = 1548
  4. Net Income Reported Quarterly ($mil) = 823
  1. EBITDA ($mil) 12/2011 = 3615
  2. EBITDA ($mil) 12/2010 = 4095
  3. EBITDA ($mil) 12/2009 = 3379
  4. Cash Flow ($/share) 12/2011 = 5.09
  5. Cash Flow ($/share) 12/2010 = 3.86
  6. Cash Flow ($/share) 12/2009 = 4.08
  1. Sales ($mil) 12/2011 = 36529
  2. Sales ($mil) 12/2010 = 33370
  3. Sales ($mil) 12/2009 = 30908
  1. Annual EPS before NRI 12/2007 = 3.16
  2. Annual EPS before NRI 12/2008 = 3.76
  3. Annual EPS before NRI 12/2009 = 2.85
  4. Annual EPS before NRI 12/2010 = 2.59
  5. Annual EPS before NRI 12/2011 = 3.79

Dividend history

  1. Dividend Yield = 2.7
  2. Dividend Yield 5 Year Average 12/2011 = 2.64
  3. Dividend 5 year Growth 12/2011 = 7.72

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.36
  2. Payout Ratio 5 Year Average 12/2011 = 0.39

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 13.2
  2. 5 Year History EPS Growth 12/2011 = 0.2
  3. ROE 5 Year Average 12/2011 = 26.95
  4. Return on Investment 12/2011 = 17.93
  5. Current Ratio 12/2011 = 1.31
  6. Current Ratio 5 Year Average = 1.26
  7. Quick Ratio = 0.97
  8. Cash Ratio = 0.38
  9. Interest Coverage Quarterly = 13.61

Conclusion

General Electric leads Honewell in the following metrics:

  • Higher yield of 3.5 Vs 2.6 for HON.
  • Year over year projected growth rates of 20% and 13% for 2012 and 2013 vs. 18% and 12% for 2012 and 2013 for HON.
  • A profit margin of 9.79 vs. 5.88% for HON.
  • A much stronger levered free cash flow of 43 billion vs. $2.2 billion for HON.
  • A better current and quick ratio of 2.5 and 2.43 vs. 1.31 and 0.97 for HON.
  • A free cash flow yield of 12% vs. 6% for HON.

Additional reasons to be bullish on General Electric

  • Its business is poised for long-term growth. Management expects demand for energy production and alternatives to fossil fuel to expand through 2012 and beyond.
  • It offers the most efficient and reliable wind turbines in the world with an average utilization capacity of roughly 99%. Growth in the energy division came in at a strong 15%, which was mainly fueled by the 56% order growth in energy equipment.
  • In the last quarter, orders for the aviation segment were up 14%; orders for commercial engines were up 14% and for military engines they were up 15%.
  • It is very well diversified with more than 50% of its revenues being generated from emerging markets. Management expects continued growth from India and China where it has been selling high-priced items such as Locomotives, and power turbines.
  • It generates huge amounts of free cash flow. In the Last quarter, it generated over $91 billion in free cash flow. This huge free cash flow provides management with the opportunity to invest in product innovation, strategic purchases and business development.

Honeywell leads General Electric in the following metrics:

  • Lower payout ratio of 36% vs. 51% for GE.
  • Quarterly earnings growth of 16.7% Vs -11.6%.
  • A five year dividend growth rate of 7.7% vs. -18.7% for GE.
  • Quarterly revenue growth of 7.3% Vs -8.2%.
  • A much higher interest coverage ratio of 13.5 vs 2.41.
  • A projected 3-5 year EPS growth of 13.2% vs. A 3-5 year projected EPS growth rate of 12.2% for GE.
  • Percentage held by institutions is 81% Vs 54% for GE.
  • A 3 year total return of 89% vs. 53% for GE.
  • Paying dividends since 1887 vs. 1889 for GE.
  • A much better long-term debt to equity ratio of 0.53 vs. 1.95 for GE.
  • A five-year sales growth of 1.5 vs. -3.29 for GE.
  • A five-year ROE average of 26.9 vs. 13.9% for GE.
  • Annual EPS before NRI has been trending upwards for five years, unlike GE, where it took a hit in 2007 and 2008.
  • $100K invested for 10 years would have grown to $274K vs. $110K for GE

While both make for great long-term investors, we would have to lean towards General electric as its business appears poised for long-term growth based upon the factors listed above. If investors have the money, it would make sense to have positions in both stocks. Contrarians might prefer General Electric over Honeywell as it is trading over 50% below its five year high, so potentially could appreciate at a faster rate than Honewell.

We still believe there is more downside to this market before multi month bottom takes hold. Long-term investors can use strong pullbacks to slowly start deploying money into long-term investments. Investors looking for other investment ideas might find these articles to be of interest.

Source: Showdown: General Electric Vs. Honeywell

Additional disclosure: EPS and Price Vs industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Ycharts data sourced from Ycharts.com. Revenue per segment and geography pie charts sourced from zacks.com

Disclaimer: This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.