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Can Honeywell’s 4Q17 Earnings Beat Estimates?

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Honeywell’s 4Q17 earnings per share estimates

Honeywell (HON) is expected to post earnings per share (or EPS) of $1.84 in 4Q17, an increase of 37.3% on a year-over-year basis. In 4Q16, HON reported earnings per share of $1.34. If HON meets EPS estimates, it would mean record quarterly earnings per share.

The projected earnings per share in 4Q17 will be primarily driven by the reduction in operating expenses. Analysts have pegged HON’s 4Q17 cost of goods sold (or COGS) to be at $7.3 billion, a ~67.5% increase in projected sales. In 4Q16, HON reported COGS of $6.9 billion, which represented 68.9% of sales. This implies a decrease of 140 basis points on a year-over-year basis.

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At the same time, HON’s selling, general, and administrative expenses are also expected to decline as a percentage of sales. HON expects to report SG&A expenses of ~$1.4 billion, a 12.7% increase in expected revenue. In 4Q16, SG&A expenses were reported at 15% of sales, which implies an improvement of 230 basis points on a year-over-year basis.

Share buybacks

In 3Q17, HON bought back 2.5 million shares for $343 million. At the end of 3Q17, HON had 771.4 million outstanding shares. However, analysts expect the number of outstanding shares in 4Q17 to be at 777.5 million shares. The increase in the number of shares could be due to stock plans, but it remains to be seen how many shares HON will buy back during 4Q17.

Investors can indirectly hold HON by investing in the Vanguard Industrials ETF (VIS), which invests 3.6% of its portfolio in Honeywell. The fund also provides exposure to Boeing (BA), 3M (MMM), and General Electric (GE), which have weights of 6.0%, 4.6%, and 4.4%, respectively, as of January 22, 2018.

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