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Honeywell shares reiterate sector perform rating on commercial agreement

EditorNatashya Angelica
Published 03/12/2024, 14:50
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On Tuesday, RBC Capital maintained its Sector Perform rating on shares of Honeywell International (NASDAQ:HON), a prominent player in the Industrial Conglomerates industry with a market capitalization of $149.52 billion, maintaining a consistent price target of $253.00.

According to InvestingPro data, the company maintains a robust financial health score of GOOD, supported by strong operational metrics and stable market performance. Following the announcement of a commercial agreement with Bombardier (OTC:BDRBF), which includes Honeywell avionics and engines on Bombardier's business jets, Honeywell has settled all legacy litigation with the company.

The deal will lead to Honeywell recognizing "launch contributions" in the fourth quarter of 2024, resulting in a significant, mostly one-time reduction in guidance. The company, which generates annual revenue of $37.85 billion, has demonstrated consistent operational stability with a track record of maintaining dividend payments for 40 consecutive years.

The agreement was made public after the market closed on December 2, 2024, and is seen by RBC Capital as a neutral-to-slightly-positive development. While the deal has prompted Honeywell to adjust its financial outlook, RBC Capital is only making minor revisions to its fourth-quarter 2024 estimates for Honeywell. The analyst firm's 2025 earnings per share (EPS) estimate for Honeywell remains unchanged despite the updated guidance from the company.

RBC Capital's price target of $253.00 for Honeywell shares is based on the expectation that the shares will trade at a 5% discount to the firm's target group multiple of 24.0x for the year 2025.

Currently trading at a P/E ratio of 26.43x, Honeywell's valuation metrics and extensive financial data are available through InvestingPro's comprehensive research reports, which provide detailed analysis of over 1,400 US stocks. This valuation reflects the analyst's perspective on Honeywell's market position and prospects following the new agreement with Bombardier.

The analyst noted that the commercial aerospace industry commonly recognizes launch contributions, which will be reflected in Honeywell's financials for the fourth quarter of 2024. Despite the adjustment to Honeywell's guidance, the long-term EPS estimate for 2025 remains stable, indicating that the impact of the agreement and the guidance cut is anticipated to be limited to the short term.

Honeywell's stock price target has been reaffirmed by RBC Capital, suggesting that the financial institution sees no immediate need to adjust its valuation based on the recent developments.

With analyst targets ranging from $197 to $298 and the stock generally trading with low price volatility, investors seeking deeper insights into Honeywell's valuation and growth prospects can access detailed analysis and additional ProTips through InvestingPro's extensive research platform.

In other recent news, Honeywell International has entered into a strategic partnership with Bombardier, estimated to generate up to $17 billion in revenue over the life of the contract. Honeywell will provide advanced avionics, propulsion, and satellite communications technologies for Bombardier's aircraft. This development comes alongside an 8% year-over-year increase in Honeywell's adjusted earnings per share in the third quarter, reaching $2.58.

However, the company has revised its 2024 financial guidance downward due to investments related to the Bombardier agreement.

Analyst firms have weighed in on Honeywell's recent activities. Morgan Stanley (NYSE:MS) retained its Equalweight rating, while Barclays (LON:BARC) maintained its Overweight rating. BofA Securities and RBC Capital Markets have increased their price targets for Honeywell following activist investor Elliott Management's acquisition of a significant stake in the company.

Elliott Management has proposed a split of Honeywell into two separate entities: Honeywell Aerospace and Honeywell Automation, leading to varied responses from analysts. These are the latest developments shaping Honeywell's strategic positioning and growth potential.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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