Honeywell: Margins Are The Real Story Here

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WG Investment Research


  • HON shares have outperformed the broader margin by a wide margin over the last year, and investors should expect more of the same in the quarters ahead.
  • The company reported impressive Q3 2017 financial results and management guided for a strong finish to the current year.
  • HON shares are a long-term buy at today's price, even after the recent run-up.

Honeywell (NASDAQ:HON) is a company that has been in the news a lot over the last six plus months, and for good reason. The company has reported impressive quarterly results over the last year and the market recently cheered management's plan to spin off two business units by the end of 2018. As a direct result, HON shares have greatly outperformed the broader market.

(Source: Nasdaq)

The recent run-up has been nice but, in my opinion, HON shares still have a lot of room to run so I would not let the current price tag keep you from investing in a company that has promising long-term business prospects. It helps that the company's most recent results also supports the long-term bull case for Honeywell.

The Q3 2017 Results, Margins Are The Real Story Here

On October 20, 2017, Honeywell reported inline EPS ($1.75) on better-than-expected revenue of $10.1B. For comparison purposes, the company reported EPS of $1.60 on revenues of $9.8B in the same period of the prior year. The YoY earnings growth was impressive, but, more importantly, the company also reported improvements almost across the board.

This company is firing on all cylinders and it is important to note that all of its operating segments are currently contributing to the impressive top- and bottom-line growth. However, the company's expanding margins are the real story to be told, of course, in my opinion.

There were two segments that expanded their margins by well-over 100bps (three if you exclude M&A), with the company's most valuable segment, i.e. Aerospace, leading the charge with margins up 290 bps when compared to Q3 2016. Mr. Darius Adamczyk, CEO, and team have been laser focused on improving operational performance over the last year and their focus has already yielded strong results.

Prior projects to improve

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long HON, GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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