Honeywell: Stick With What Has Been Working

Sep. 02, 2019 9:51 AM ETHoneywell International Inc. (HON)12 Comments
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  • Honeywell's stock has been under pressure in the recent past, but HON's shares are still significantly outperforming the broader market over the last 5 years.
  • Honeywell's recent operating results (and management commentary) tell a good story about this company's long-term business prospects. As such, I believe that long-term shareholders should consider staying the course.
  • I hold a sizable Honeywell position and I plan to stay long the stock.
  • This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Get started today »

Honeywell's (NASDAQ:HON) stock has faced downward pressure over the last 3 months, as shown by the fact that the broader market is outperforming HON's shares by ~5 percentage points over this period of time.

ChartData by YCharts

The market has been extremely volatile so far in 2019 with the biggest contributor being the US-China trade war (and related concerns), but, in my opinion, investors should look past the current noise and stick with what has been working, i.e., Honeywell's stock. HON's shares have significantly outperformed the broader market over the last 1-, 3- and 5-year periods. And if you ask me, investors should expect more of the same over the next 5 years.

The Latest - Good Results From Top To Bottom

Honeywell recently reported adjusted Q2 2019 EPS of $2.10 (beat by $0.02) on revenue of $9.24B (missed by $130M), which compares favorably to the year-ago period.

Source: Q2 2019 Earnings Presentation

As shown, Honeywell's quarterly results were strong across the board. Organic sales were up 5% YoY, which was primarily a result of strength seen in aerospace and building solutions (key growth drivers for this company). Additionally, Honeywell's adjusted EPS were higher YoY and, importantly, the company continued the long streak of improving its cash conversion.

However, as I previously described here, I believe that Honeywell's margins are the real story for this industrial conglomerate (and its stock), so it is encouraging that the most recent results showed further progress toward management's goal of eliminating unnecessary costs and expanding margins in three out of four of its operating segments.

Source: Q2 2019 Earnings Presentation

There is a lot to like about Honeywell's most recent operating results, but looking ahead, it is hard not to be bullish about Honeywell's business prospects, especially after factoring in the strong 2019 guidance.

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This article was written by

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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, GTX, REZI. 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.

Additional disclosure: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.

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