Honeywell Stock Is Becoming a Juggernaut

April 16, 2018 |  By Mishka

WASHINGTON – JANUARY 28: U.S. President Barack Obama (R) greets David M. Cote, Chairman and CEO of Honeywell, before speaking on the U.S. economy from the East Room of the White House January 28, 2009 in Washington, DC. The U.S. House of Representatives is expected to vote today on a $825 billion economic stimulus package proposed by Obama’s administration. (Photo by Win McNamee/Getty Images)

Honeywell stock has emerged as a sleeping giant, although those who are already familiar with the firm, will call it anything but a sleeper. While the finance media world is busy regurgitating the same information about Apple, Alphabet, oil, and interest rates, Honeywell has made themselves into a quiet juggernaut in the diversified technology industry. The stock’s current price is $146.12, with a P/E ratio of 18.5 and a dividend yield of 2.1%. Many analysts believe that the revenues will surpass the $50 billion per year mark in relative short order. This is mostly because their aerospace branch is rapidly expanding due to increased demand. This demand is diversified in their business jet, helicopter, and airline aviation subdivisions. It is also particularly strong in the firm’s respective defense sector as orders have increased due to political uncertainty & discourse, particularly on the Korean Peninsula. 

Increased demand in Honeywell’s aerospace products is only one of the reasons why its investors should be happy over the coming months. Due to President Trump’s Tax Cuts and Jobs Act, there will be an extensive repatriation of Honeywell’s resources back into the U.S., where it is primarily looking to expand. Under this new act, there will be a one-time tax cut of 15.5% for domestic companies holding cash overseas, in addition to an 8% cut for illiquid assets. This repatriation is estimated to be, by the most modest of estimates, about $7 Billion dollars in Honeywell’s coffers- which they can choose to dole out to shareholders, or more likely, use for mergers and acquisitions. CFO Tom Szlosek verified the firm’s plans to absorb smaller niche companies within their industry in an earlier statement, “Preliminarily we expect that at least $7 billion of the $10 billion in cash held by our foreign subsidiaries can be repatriated in the next two years [which we will use to] more aggressively seek out M&A, particularly in the U.S.”

Mergers & Acquisitions, if done right, should theoretically raise Honeywell’s top-line growth, which has seen only a moderate increase in the past few years. Many are looking at this as a new era in Honeywell’s history, as their free cash flow has been relatively low previously, due to a long duration of internal investment within product development. Now that they are on the forefront in various areas of the diversified-tech industry, they have seen great revenue increases. This paired with the tax repatriation, is expected to create a windfall of free cash that is unprecedented in the company’s contemporary history. It is reasonable to believe that there will be all-out M&A blitz targeting companies that correlate with the sectors of Honeywell responsible for all of this growth in revenue (such as aerospace). If all this news isn’t enough, the next quote from Honeywell’s CEO Darius Adamczyk should make any skeptic even slightly bullish, “We told you we’re trying to move toward a 100% free cash flow conversion rate, we hit 90% in 2017. And we think prospects are good to drive that further in 2018.”


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