Summary
Honeywell reported strong 6% organic revenue growth, though with some inconsistencies across the businesses and more than a half-point of segment-level margin improvement.
Warehouse automation remains a compelling long-term opportunity, while aerospace, process automation and safety can deliver good shorter-term results.
In a pricey sector, Honeywell's reasonable valuation seems like a relative bargain, but sector de-rating is still a risk.
In prior articles on Honeywell (HON), I had written that I expected this company’s attractive business mix and high-quality management to deliver above-peer results in 2018. So far, that prediction is looking relatively safe as Honeywell continues to produce strong overall results. Better still, the company’s leverage to aerospace and safety should continue to generate good short-term results, while businesses like process automation and productivity look to have strong long-term potential.
Honeywell has lagged the S&P 500 on a year-to-date and trailing 12-month basis, and I can’t really say that the shares are cheap today. The current industrial cycle may not be as late as previously thought, but industrial sector valuations are still pretty high on a historical basis and I am worried that rotation away from the sector could offset the good results from Honeywell. I’m not urging long-term holders to sell, but the price still isn’t at a price that compels me to buy.
