Honeywell: Focusing On Aerospace And Defense To Continue Above Industry Growth Trend

Summary

The October sell off has created an attractive opportunity to pick up shares at value levels and a potential 18% return opportunity.

Honeywell has been focusing on all things Aerospace and making an effort to grow their defense product lines.

The company has repurchased $2.3 billion in stock during 2018 and will continue accelerating the buyback at depressed share levels.

Honeywell completed the spin-offs of Homes and Global Distribution named “Resideo” and transportation Turbocharger divisions named “Garrett”.

The Opportunity

Honeywell (HON) fared better than peers during the October sell off and only traded down by 13% from all time highs recently reached. The stock is undervalued and the sell off has created an opportunity for shareholders to pick up shares at a great value. Honeywell is growing their top line in the high single digits ~8% and trading to a 19 times forward price to earnings ratio, which appears below fair value of $170 per share. Based upon my share price estimate of $170, the stock has an 18% return potential.

Finalized Spin-offs and Acquisitions

The company finalized the spinoffs of Resideo (REZI) and Garrett (GTX) with 1:6 and 1:10 share disbursements, respectively. The spin-off was to allow Honeywell to focus on core competencies and acquire company’s that are within their wheel house.

The most recent acquisition of Transnorm for ~$480 million will complement Honeywell’s portfolio and target parcel delivery market that has supported growth in the European e-commerce industry. Transnorm will be incorporated into the Safety and Productivity Solutions division and it is a synergistic acquisition in nature. The company has a Connected Distribution Center product which uses sensors and software management to ensure packages arrive in the proper conveyors and destination before shipment.