Honeywell International Inc. (HON) Annual Valuation

moneyCompany Profile (obtained from Google Finance): Honeywell International Inc. (Honeywell) is a diversified technology and manufacturing company, serving customers worldwide with aerospace products and services, control, sensing and security technologies for buildings, homes and industry, turbochargers, automotive products, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals, and energy efficient products and solutions for homes, business and transportation. Honeywell operates four business segments: Aerospace, Automation and Control Solutions, Performance Materials and Technologies, and Transportation Systems. In June 2013, the Company acquired RAE Systems, Inc. In September 2013, Honeywell International Inc announced that it has completed its acquisition of Intermec Inc, a provider of mobile computing, radio frequency identification solutions (RFID), voice-enabled workflow and data-collection solutions, and printing solutions.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $51.78
MG Opinion Overvalued
Value Based on 3% Growth $52.62
Value Based on 0% Growth $30.84
Market Implied Growth Rate 8.14%
Net Current Asset Value (NCAV) -$0.13
PEmg 24.78
Current Ratio 1.32
PB Ratio 471.62

Balance Sheet – 9/30/2013 

Current Assets $19,304,000,000
Current Liabilities $14,663,000,000
Total Debt $5,789,000,000
Total Assets $44,406,000,000
Intangible Assets $15,820,000,000
Total Liabilities $29,447,000,000
Outstanding Shares 78,467,000,000

Earnings Per Share

2013 (estimate) $4.91
2012 $3.69
2011 $2.35
2010 $2.61
2009 $2.85
2008 $3.76
2007 $3.16
2006 $2.51
2005 $1.86
2004 $1.49
2003 $1.56
2002 -$0.27

Earnings Per Share – ModernGraham 

2013 (estimate) $3.63
2012 $3.01
2011 $2.76
2010 $2.97
2009 $3.04
2008 $2.95


Honeywell International Inc. is a good company that just misses the mark for both the Defensive Investor and the Enterprising Investor.  The company does not have a strong enough current ratio, and is trading at too high of PEmg and PB ratios for the Defensive Investor.  For the Enterprising Investor, the company holds too much debt relative to its current assets.  Value investors seeking to follow Benjamin Graham’s methods should research other opportunities, beginning with a review of our valuation of United Technologies Corporation (UTX).  From a valuation side of things, the company has exhibited some growth in EPSmg (normalized earnings), going from $2.95 in 2008 to an estimated $3.63 for 2013.  However, the market is currently implying a growth estimate of 8.14%, which is higher than has been seen historically.  As a result, Honeywell would appear to be overvalued at the current time.

What do you think?  Do you agree that Honeywell International Inc. is overvalued?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Honeywell International Inc. (HON) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill

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