Honeywell Trades at a Premium to UTX ahead of 2Q17 Earnings
Honeywell’s forward PE
On July 13, 2017, HON was trading at a one-year forward PE (price-to-earnings) ratio of 18.3x compared to its peer UTX, which was trading at a one-year forward PE ratio of 18.0x.
Interested in IYJ? Don't miss the next report.
Receive e-mail alerts for new research on IYJ
The forward PE considers future earnings for valuation purposes. The forward PE tells investors how much they are willing to pay for a stock per dollar of expected earnings in the next 12 months.
Investors can make use of this valuation technique and compare two or more companies operating in the same industry. This information allows investors to judge whether a company is overvalued or undervalued.
Honeywell trades at a marginal premium
Honeywell is trading at a premium compared to United Technologies (UTX). HON reported 2% organic growth revenue growth in 1Q17 and expects the trend to continue. During 2Q17, HON won several new business deals, which could fuel its growth.
At the same time, improved operational performance led the company to post EPS of $1.71 in 1Q17. Analysts expect HON to post EPS of $7.08 in fiscal 2017, an increase of 14.2% over its fiscal 2016 EPS. For fiscal 2018, analysts expect HON’s EPS to grow 8.9% over its expected earnings for fiscal 2017.
On the other hand, UTX’s fiscal 2017 EPS growth is projected to be 7.3%. For fiscal 2018, analysts estimate UTX’s EPS growth to be 7.4% over the expected EPS of fiscal 2017. In comparison, HON’s growth rate for the next one-year period appears to be better than UTX, resulting in the stock trading at a premium.
Investors looking for exposure in Honeywell can invest in the iShares U.S. Industrials ETF (IYJ), which holds 3.5% of its portfolio in HON. The top holdings of the fund include General Electric (GE) and 3M (MMM), with weights of 7.8% and 4.2%, respectively, on July 13, 2017.