Honeywell’s Debt Continues to Soar: Should Investors Worry?



Honeywell’s debt

Honeywell’s (HON) debt, which has been rising for the past five years, doubled between 2013 and 2017. At the end of Q1 2018, HON’s debt stood at $18.3 billion. Debt here includes long-term debt and maturities, and commercial papers and other short-term borrowings.

HON’s debt has grown at a compound annual rate of 19.2%, raising its debt-to-equity ratio from 0.51x in 2013 to 1.0x at the end of Q1 2018. Its ratio is well above the industry average of 0.72x. Industrial peers General Electric (GE), 3M (MMM), and Deere (DE) have weaker debt-to-equity ratios of 2.3x, 1.4x, and 4.0x, respectively. As HON’s debt has increased, its interest expenses have risen.

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Interest coverage ratio

A company’s interest coverage ratio indicates how well it can service its debt. The ratio can be obtained by dividing EBIT by interest expenses. The higher the multiple, the better it is for the company. At the end of Q1 2018, HON’s interest coverage ratio was 24.8x—well above the industry average of 6.5x—suggesting HON could easily service its debt. Investors can indirectly hold HON through the Vanguard Industrials ETF (VIS), of which HON comprised 3.6% as of June 14.


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