Morgan Stanley on Friday initiated coverage of Honeywell International (NASDAQ:HON) with an Equalweight rating and a $210 price target. The firm expressed caution regarding the company’s near-term recovery prospects and growth in the coming years.
According to the analyst, Honeywell is experiencing lower-than-desired organic growth and faces risks of negative revisions due to its underexposure to key industrial megatrends.
The analyst noted that consensus expectations that Honeywell’s short-cycle business lines will rebound sharply in the second half of 2024 to 2025 may be overly optimistic. Morgan Stanley’s outlook suggests Honeywell could continue to see mid-single-digit declines in the first half of 2024, in contrast to the consensus model of more than mid-single-digit growth.
The company’s cautious stance is based on indicators that imply potential prolonged headwinds due to Honeywell’s significant exposure to certain sectors such as U.S. warehouses, U.S. retail and global non-residential, where leading indicators remain negative.
As for Honeywell’s exposure to longer cycles, such as aerospace technology and building solutions, Morgan Stanley expects challenges in sustaining double-digit growth. This is due to tougher comparisons and potential channel destocking, as aerospace and defense channel inventories appear elevated amid ongoing supply chain concerns, an issue highlighted by broader U.S. industrial trends.
Morgan Stanley’s analysis suggests that Honeywell may struggle to meet its 4-7% organic growth target and even miss consensus forecasts of 5-6% growth. Instead, the firm sees more conservative organic growth of 3-4% for Honeywell in 2025-26. This assessment reflects the view that Honeywell’s valuation may not return to historical levels given the growth challenges outlined and market trends.
In other recent news, Honeywell International Inc (NASDAQ:). has announced a CFO transition plan with Michael Stepniak set to replace Greg Lewis, following the release of the company’s fourth quarter and full-year 2024 financial results. Stepniak will transition to his new role as senior vice president and chief financial officer on a date approved by the company’s Board of Directors, while Lewis will assume new responsibilities as senior vice president of Honeywell Accelerator.
Honeywell also reported strong financial results for the second quarter of 2024, beating its adjusted earnings per share guidance and meeting the upper range of its organic sales guidance. The company’s aerospace sector, which includes the commercial aerospace, defense and space, and Building Solutions businesses, drove this growth.
Additionally, Honeywell has completed the acquisition of CAES Systems Holdings LLC in a cash transaction for $1.9 billion, significantly expanding its defense and space portfolio. The company has also issued $3.5 billion in senior notes to manage its capital structure and fund various business operations.
RBC Capital Markets has maintained a Sector Perform rating on Honeywell shares, adjusting its price target in response to the company’s recent downward revision to its 2024 guidance.
InvestingPro Insights
As Morgan Stanley cautiously looks at Honeywell International’s growth prospects, InvestingPro’s real-time data provides additional context for investors. Despite the concerns raised, Honeywell has demonstrated financial resilience. The company’s market capitalization stands at a solid $131.87 billion and it has maintained a stable dividend, increasing it for 13 consecutive years. This commitment to shareholder returns is reflected in a current dividend yield of 2.13%, with recent dividend growth of 4.85%, as of the trailing twelve months leading up to Q2 2024.
Additionally, Honeywell’s price-to-earnings (P/E) ratio is 22.95, with a slight adjustment to 22.64 over the trailing twelve months to the second quarter of 2024. While this indicates a high valuation relative to near-term earnings growth, it is worth noting that analysts predict the company will remain profitable this year. Honeywell stock is known for its low price volatility, which could prove attractive to investors looking for stability in their portfolio. An InvestingPro tip suggests that Honeywell is a prominent player in the industrial conglomerate industry, which can offer a degree of resilience amid market fluctuations. For investors interested in more analysis and advice, InvestingPro offers additional insights on Honeywell at https://www.investing.com/pro/HON, with a total of 9 more InvestingPro tips available.
Investors should also consider Honeywell’s moderate debt level and elevated earnings valuation multiple, which may impact the company’s ability to navigate the uncertain economic landscape highlighted by Morgan Stanley. With these metrics in mind, stakeholders can better assess Honeywell’s financial health and future prospects in accordance with Morgan Stanley’s analysis.
This article was generated with the support of AI and reviewed by an editor. For more information, please see our terms and conditions.