Analyzing Honeywell’s Valuation Compared to GE



Honeywell’s forward PE multiple

In the previous part, we looked at analysts’ views and recommendations for Honeywell (HON). In this part, we’ll look at Honeywell’s valuations compared to its peer. As of September 6, 2017, Honeywell’s one-year forward PE (price-to-earnings) multiple stands at 18.20x, while its peer General Electric (GE) has one-year forward PE multiple of 15.10x.

The forward PE valuation considers future earnings while calculating valuations. It can be a handy tool for investors. The valuation helps compare two or more companies operating in the same industry. It shows which company is overvalued and which company is undervalued.

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Honeywell trades at a premium

Currently, Honeywell is trading at a premium compared to its peer General Electric. After posting two consecutive earnings that beat analysts’ estimates, Honeywell is expected to post EPS (earnings per share) of $7.09 for fiscal 2017, which implies 7.50% growth compared to fiscal 2016. For fiscal 2018, analysts expect Honeywell to post EPS of $7.76, which indicates 9.5% growth compared to fiscal 2017. Honeywell’s organic growth and better control over its operating expenses are expected to drive the company’s revenue and earnings growth.

On the other hand, analysts expect General Electric to post EPS of $1.56 for fiscal 2017—5.0% growth compared to its fiscal 2016 earnings. Due to disappointing 2Q17 earnings, achieving the estimated EPS looks more challenging. For fiscal 2018, analysts expect General Electric’s EPS to be $1.71, which implies 9.1% growth compared to fiscal 2017. With Honeywell’s earnings growth better than General Electric, the stock is trading at a higher forward PE multiple than its peer.

Investors looking for indirect exposure to Honeywell can invest in the iShares U.S. Industrials ETF (IYJ). IYJ has invested 3.40% of its portfolio in Honeywell. The fund also provides exposure to Boeing (BA) and 3M (MMM) with weights of 4.30% and 4.0%, respectively, as of September 6, 2017.


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