Honeywell Q3 Profit Tops Estimates, Aerospace Profit Improvement Impressive
Honeywell International Inc, a worldwide technology and manufacturing company, reported a better-than-expected profit in the fourth quarter but said sales were down 14% on a reported and organic basis as the COVID-19-related travel restrictions and a collapse in air travel hit demand.
The company which makes parts for planes made by Boeing and Airbus SE said its third-quarter EPS was $1.07. Excluding items, the conglomerate earned $1.56 per share, higher than the market expectations of $1.49 per share.
Aerospace sales for the third quarter fell 25% to $2.66 billion, better than the second quarter’s decline of 28%. That improvement was largely driven by lower commercial aftermarket demand due to the ongoing impact of reduced flight hours and lower volumes in commercial original equipment, partially offset by double-digit growth in Defense and Space, the company said.
Honeywell expects fourth-quarter sales of $8.2 billion to $8.5 billion, representing a year-over-year organic sales decline of 11% to 14%; segment margin of 21.1% to 21.3%, down 10 to 30 basis points; and earnings per share of $1.97 to $2.02, down 2% to 4% adjusted.
Full-year sales are forecast to be in the range of $31.9 billion to $32.2 billion, representing a year-over-year organic sales decline of 12% to 13%; segment margin of 20.4% to 20.5%, down 60 to 70 basis points; and adjusted earnings per share of $7.00 to $7.05, down 14%.
Honeywell International shares closed 0.21% higher at $164.95 on Friday; however, the stock is down about 7% so far this year.
“We also focused on aggressively managing cost, and delivered over $450 million in savings in the quarter, bringing our year-to-date total to $1.1 billion. We now expect to generate $1.5 billion to $1.6 billion of cost savings during 2020, up from our previous estimate of $1.4 billion to $1.6 billion,” said Darius Adamczyk, chairman and chief executive officer of Honeywell.
“Honeywell’s balance sheet remains strong, with $15 billion of cash and short-term investments on hand, and we further enhanced our financial flexibility this quarter by issuing $3 billion of bonds at attractive rates and repaying in full the $3 billion term loan borrowed earlier this year. Capital deployment remains a focus for us. In the third quarter, we resumed opportunistic share repurchases and announced the 11th consecutive increase to our dividend. We also recently announced two acquisitions that will provide emerging technologies in our Aerospace business. I am confident we are well-positioned for economic recovery.”
Honeywell International Stock Price Forecast
Seven equity analysts forecast the average price in 12 months at $179.86 with a high forecast of $198.00 and a low forecast of $158.00. The average price target represents a 9.04% increase from the last price of $164.95. From those seven analysts, four rated “Buy”, three rated “Hold” and none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $172 with a high of $208 under a bull-case scenario and $137 under the worst-case scenario. The firm currently has an “equal-weight” rating on the manufacturing company’s stock. Deutsche Bank raised their stock price forecast to $169 from $153 and Citigroup upped their price target to $197 from $170.
Several other analysts have also recently commented on the stock. Honeywell International had its target price upped by analysts at JP Morgan to $198 from $185. The firm currently has an “overweight” rating on the conglomerate’s stock. Royal Bank of Canada downgraded to a “sector perform” rating from an “outperform” and lowered their price objective to $158 from $166 in August. Deutsche Bank dropped their price target on shares of Honeywell International from $163.00 to $153.00 and set a “hold” rating on the stock in July.
“We view Honeywell’s (HON) long-term term COVID-19 disruption as outsized relative to the rest of our group. We expect Aero to remain weak through 2021 as flight hours see sharp declines and maintenance gets deferred until 2022. For HON’s oil & gas related segments to see continued pressure building beyond 2Q as customer budgets come down due to weaker oil budgets,” said Joshua Pokrzywinski, equity analyst at Morgan Stanley.
“We see HON’s balance sheet capacity and repatriation potential as attractive, especially given management’s discipline in M&A to appropriately balance growth, value, and disruption. We believe industrials have found themselves tilting to value to find synergies without acknowledging disruption or ignoring value entirely for quality assets,” Pokrzywinski added.
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