The Hidden Value in Honeywell Stock

Industrial giant Honeywell International (NASDAQ: HON) is significantly outperforming the S&P 500 index in 2022, and the company provided some cheer in the recent earnings season by raising full-year guidance — an uncommon event in the current environment. Moreover, there’s plenty of evidence to suggest that long-term underlying growth is on track, you just have to look behind the headlines to see it. Here’s the how and why. An investor looking out through binoculars.

Image source: Getty Images.

Honeywell in 2022

Honeywell recently raised its full-year EPS guidance by $0.10 to $8.50-$8.80, and maintained full-year organic sales guidance of 4%-7%. As with many industrial companies in 2022, Honeywell has had to endure supply chain issues and raw material price rises that have challenged its ability to ship products and maintain margin. Still, orders (up 13% year-over-year in the quarter) remain strong, and its backlog grew 9% to $28.5 billion. For reference, management estimates full-year 2022 sales of around $36 billion.

That’s the headline data, but there’s a lot more going on under the surface, and Honeywell’s long-term growth prospects are excellent — part of the reason why management recently raised its long-term organic sales growth target to 4%-7% from 3%-5% previously.

One-off items and sales guidance

While 2022 sales guidance is merely in line with the long-term guidance, the underlying picture is stronger. There are a couple of one-off items holding back growth in 2022. First, the company will lose $400 million in sales to Russia in 2022 as a result of sanctions imposed on that country. Second, a reduction in COVID-19 mask-related sales will also hold back sales growth. Stripping out these two items, Honeywell’s organic sales growth guidance is 6%-9%.

Quantum computing and sustainable fuels

Management is aggressively investing for long-term growth in sustainable technology businesses (green aviation fuels, recycled plastic feedstock, renewable energy battery technology, etc.) and quantum computing via a majority stake in industry leader Quantinuum. Honeywell CEO believes Quantinuum will hit $2 billion in sales by 2026 in an industry potentially worth $1 trillion. Meanwhile, management forecasts that sustainable technology businesses will grow sales from $200 million in 2021 to $700 million in 2024.

Unfortunately, these growth investments are constraining near-term earnings and free cash flow (FCF), with management outlining a $200 million impact on FCF in 2022 — full-year 2022 FCF guidance is $4.7 billion-$5.1 billion.

Growth prospects across all segments

Honeywell has strong long-term growth prospects in all of its segments, even if it isn’t immediately apparent over the near term.

Honeywell Segment

Sales 2021

Growth Outlook


$11 billion

High single digits

Honeywell Building Technologies (HBT)

$5.5 billion

High single digits to double digits

Performance Materials and Technologies (PMT)

$10 billion

Mid-single digits to high single digits

Safety and Productivity Solutions (SPS)

$7.8 billion


Data source: Honeywell presentations

Honeywell’s aerospace segment generated $14 billion in sales and $3.6 billion in segment profit in the last “normal” year before the COVID-19 pandemic hit the travel industry. As the commercial aviation industry recovers its former glory, it’s reasonable to expect Honeywell’s aerospace to follow and build on the $11 billion in sales and $3 billion in profit in 2021.

Honeywell Building Technologies raised its full-year sales guidance from high-single-digit growth to a range of high-single-digit to double-digit growth, and it stands to benefit from infrastructure spending, and the trend toward smart connected buildings, as well as healthy buildings in the wake of the pandemic.

Commercial office buildings.

Image source: Getty Images.

The performance materials and technologies segment bore the brunt of the loss of Russia sales in its UOP (catalysts and absorbents for the refining and chemicals industries) segment, but organic sales growth was 7% and 16% in Honeywell Process Solutions and advanced materials, respectively.

Finally, safety and productivity solutions segment organic sales declined 15% in the first quarter, but this was due to a combination of a decline in mask sales and lumpiness in the e-commerce warehouse automation business Intelligrated as it corrects from previous torrid rates of growth. However, within SPS advanced sensing technologies and productivity solutions and services grew by 24% and 16% respectively.

All told, the company has a host of positive earnings drivers in the coming years.

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Lee Samaha has positions in Honeywell International. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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