Honeywell’s Future in Industrial Automation and Aerospace Revealed: Is This Stock a Hidden Gem?

Markham, Ontario, Canada – Challenging times lie ahead for multi-industrial companies as the outlook for short-cycle industrial end-markets remains uncertain in the second half of the year. Similarly, the slowdown in process end-markets adds to the complexity of the current industrial landscape. Despite these challenges, the aerospace sector, often seen as old news, still holds strong potential for revenue and earnings growth in the long term.

Over the past 18 months, Honeywell International Inc. has seen its shares underperform in comparison to the broader industrial sector, with only an 11% gain as opposed to the sector’s 22% increase. While the company’s valuation may have played a role in this underperformance, there are opportunities in the aerospace, automation, and material sciences segments that could drive future growth for Honeywell.

The recent slowdown in capex across various short-cycle markets has impacted companies like ABB Ltd., Eaton, Siemens, and Rockwell. Honeywell, known more for its safety and workflow automation solutions, has also felt the effects of this market trend. However, with potential growth in warehouse automation technologies and automation penetration in distribution centers, there are opportunities for Honeywell to capitalize on in the long run.

In the aerospace sector, Honeywell continues to see strong sales in original equipment, with defense business showing promising growth opportunities. Despite the challenges faced by major OEMs like Airbus and Boeing, Honeywell’s position in the market remains positive, especially with recent acquisitions strengthening the company’s portfolio.

As Honeywell shifts its focus towards growth, M&A activities have picked up pace with strategic acquisitions aimed at complementing the company’s existing technologies. The outlook for revenue estimates in 2024 may face some downside risks, particularly in the building and industrial automation segments. However, there is potential for revenue growth across all segments, driven by a mix of services and software.

Looking ahead, Honeywell is expected to see operating and EBITDA margin improvement, with gradual growth in free cash flow margins. Despite the challenges in the market, Honeywell’s strong position in the industrial sector positions it as a viable option for investors looking for quality industrial stocks. With a fair value range estimated for Honeywell and potential for long-term growth, the company remains a compelling choice in the industrial space.