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Honeywell Fell 7.5% as Business Update Spooked Investors

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Nov. 20 2020, Updated 5:27 p.m. ET

Honeywell business update

A few days ago, we published our pre-earnings series on Honeywell (HON) and highlighted how an inflection in its UOP (or United Oil Products) business was building optimism for the stock. However, a business update released on October 7 ended that momentum, and the stock consequently tanked 7.5% to $106.94. This was Honeywell’s biggest one-day drop since August 2011. 

Honeywell is largely considered a safe haven in the stock world. Therefore, the business update had a ripple effect on other industrial (IYJ) stocks as well. As weak fundamentals in the business jet market were a big contributor to the guidance downgrade, companies with business jet exposure suffered the most. Textron (TXT) was down 3.6%, United Technologies and BE Aerospace (BEAV) were down 1.5%, and Transdigm (TDG) lost 1.6% of its value.

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Honeywell revises guidance for 3Q16

Honeywell downgraded its 3Q16 earnings guidance by ten cents to $1.60. Of the ten cents, three cents came from the pushback related to weak fundamentals in the Business Jet and Productivity Solutions businesses. The remaining seven cents were on account of the adoption of the FASB accounting standards update, which pertains to the treatment of stock compensation. Previously, the tax gains on the difference between the option strike price and the market value of the stock at the time of employee exercise were recognized in the balance sheet. These are now recognized in the income statement. All publicly listed US companies are required to adopt these standards in 2017. However, as Honeywell has adopted these standards in 3Q16, it has to restate its entire 2016 figures based on these standards. The quarter-wise breakup of these benefits this year are three cents, four cents, and seven cents per share in 1Q16, 2Q16, and 3Q16, respectively.

Before we take a closer look at the business aspects of this downgrade, we’ll look at some of the immediate major reactions in the analyst community in the next part.

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