How Do Honeywell’s Latest Valuations Compare to Peers?

Peter Neil - Author

Aug. 18 2020, Updated 5:18 a.m. ET

Honeywell’s forward PE

In the previous part of this series, we saw analysts’ recommendations. In this section, we’ll analyze Honeywell’s (HON) valuation with peer valuations. As of February 21, 2017, HON traded at a one-year forward PE multiple of 17.5x as compared to its peer United Technologies (UTX), which is trading at a one-year forward PE multiple of 17.0x.

Forward price to earnings (or PE) is a relative valuation method that considers the company’s future earnings. The forward price-to-earnings ratio tells how much investors are paying for the stock on per dollar of expected earnings in the next 12 months. It’s one of the most popular valuation tools to help investors compare between two or more companies that operate in the same industry to see which stocks are overvalued or undervalued.

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Honeywell trades at a premium compared to peers

At present, Honeywell stock is trading at a premium compared to peer United Technologies after HON declared strong 4Q16 and full-year earnings on January 27, 2017. However, the major challenge for HON is revenue growth in the future. HON’s revenue did rise 2% in fiscal 2016 compared to fiscal 2015. In its guidance for fiscal 2017, the company said it expects organic revenue growth of 1%–3%, but on a reporting basis, HON expects the revenue to be negatively affected in the range of 1%–2% due to divestitures.

Apart from revenues, Honeywell has a better net income margin of 12.7% in 2016, while UTX’s net income margin was at around 8.8%. Further, in 2017, HON expects its segment margin to go up by 70–110 basis points due to restructuring benefits. Also, HON’s earnings per share rose 2.6% in 2016 as compared to fiscal 2015. For fiscal 2017, HON has provided EPS guidance to be in the range of $6.85–$7.10, implying a growth rate of 10.5%–14.5%.

Notably, investors can indirectly hold Honeywell by investing in the iShares U.S. Industrials ETF (IYJ), which invests 3.2% of its portfolio in Honeywell as of February 21, 2017. The top holdings of the fund include General Electric (GE) and 3M (MMM), which have weights of 9.2% and 3.8%, respectively.


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