Morgan Stanley sees moderate risk on Honeywell shares, begins coverage on Equalweight By Investing.com
On Friday, Morgan Stanley started coverage on Honeywell International (NASDAQ:HON) with Equalweight rating and $210 price target. The firm expressed optimism about the company’s near-term prospects for recovery and growth in the coming years.
According to the analyst, Honeywell is experiencing lower than desired organic growth and is facing negative revision risks due to limited exposure to key industry trends.
The analyst pointed out that expectations for Honeywell’s short-cycle business lines to recover significantly in the second half of 2024 to 2025 may be overly optimistic. Morgan Stanley’s outlook suggests Honeywell could continue to see mid-digit declines through the first half of 2024, compared to the consensus model for mid-single-digit-plus growth.
The company’s cautious stance is based on indicators that suggest possible headwinds due to Honeywell’s significant exposure to certain sectors such as US Warehouse, US Retail, and Global non-residential, where the leading indicators are still negative.
Regarding Honeywell’s long-cycle exposures, such as Aerospace Technology and Building Solutions, Morgan Stanley predicts challenges in sustaining double-digit growth. This is due to strong comparisons and potential stock reductions, as Aerospace and Defense inventory appears to be high amid ongoing supply chain concerns, a problem that runs counter to broader US industrial trends.
Morgan Stanley’s analysis suggests that Honeywell may struggle to meet its organic growth target of 4-7% and even fall short of the consensus forecast of 5-6% growth. Instead, the company models organic growth of 3-4% for Honeywell in 2025-26. This assessment reflects the view that Honeywell’s valuation may not return to historic levels due to the aforementioned growth challenges and market conditions.
In other recent news, Honeywell International Inc (NASDAQ: announced the transition plan for CFO Michael Stepniak 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 Executive Vice President and CFO on the date approved. is the company’s Board of Directors, while Lewis will take on new responsibilities as Senior Vice President, Honeywell Accelerator.
Honeywell also reported strong financial results for Q2 2024, exceeding its adjusted earnings per share and achieving the high range of its sales guidance. The company’s aerospace division, which includes commercial aerospace, defense and space, and Building Solutions businesses, has driven this growth.
In addition, Honeywell has completed the acquisition of CAES Systems Holdings LLC for $1.9 billion, marking a significant expansion of its defense portfolio and space. The company also issued $3.5 billion in senior notes to manage its capital structure and fund various corporate activities.
RBC Capital Markets maintained a Sector Perform rating on Honeywell’s stock, adjusting its price in response to the company’s recent downward revision to its 2024 guidance.
InvestingPro Insights
As Morgan Stanley keeps a close eye on Honeywell International’s growth prospects, real-time data from InvestingPro provides additional context for investors. Despite the concerns raised, Honeywell has shown financial resilience. The company’s market capitalization stands at a robust $131.87 billion, and it has maintained strong dividends, expanding for 13 consecutive years. This commitment to shareholder return is reflected in the current dividend yield of 2.13%, and recent 4.85% growth in dividends, from the last twelve months leading to Q2 2024.
Furthermore, Honeywell’s price-to-earnings (P/E) ratio is 22.95, slightly revised to 22.64 for the last twelve months through Q2 2024. Although this reflects a higher valuation relative to near-term earnings growth, it is worth noting . that analysts predict that the company will remain profitable this year. Honeywell stock is known for its low price volatility, which may be attractive to investors looking for stability in their portfolio. InvestingPro Tip suggests that Honeywell is a dominant player in the Industrial Conglomerates industry, which can provide a degree of stability during market volatility. For investors interested in more analysis and tips, InvestingPro offers more information on Honeywell with 9 more InvestingPro Tips available.
Investors should also consider Honeywell’s moderate level of debt and high multiple of earnings, which could impact the company’s ability to navigate the uncertain economic environment highlighted by Morgan Stanley. With these metrics in mind, stakeholders can better assess Honeywell’s financial health and future prospects in line with Morgan Stanley’s analysis.
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