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Honeywell International Inc Valuation – February 2016 $HON

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Honeywell International Inc (HON) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Honeywell International Inc. (Honeywell) is a diversified technology and manufacturing company. The Company is engaged in serving customers across the world with aerospace products and services, turbochargers, control, sensing and security technologies for buildings, homes and industry, specialty chemicals, electronic and advanced materials, process technology for refining and petrochemicals, and energy efficient products and solutions for homes, business and transportation. The Company operates in segments: Aerospace, Automation and Control Solutions (ACS), and Performance Materials and Technologies (PMT). Its Aerospace segment is a supplier of aircraft engines, integrated avionics, systems and service solutions, and related products and services. ACS segment provides environmental and combustion controls, sensing controls, security and life safety products and services. Its PMT segment develops and manufactures advanced materials, process technologies and automation solutions.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of HON

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $78,700,337,535 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.09 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 95.65% Pass
6. Moderate PEmg Ratio PEmg < 20 18.15 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.30 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.09 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.30 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

HON value chart February 2016

EPSmg $5.66
MG Growth Estimate 13.61%
MG Value $202.12
Opinion Undervalued
MG Value based on 3% Growth $82.07
MG Value based on 0% Growth $48.11
Market Implied Growth Rate 4.82%
Current Price $102.72
% of Intrinsic Value 50.82%

Honeywell International Inc does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the high PB ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.97 in 2012 to an estimated $5.66 for 2016.  This level of earnings growth outpaces the market’s implied estimate of 4.82% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Stage 3: Information for Further Research

HON charts February 2016

Net Current Asset Value (NCAV) -$14.07
Graham Number $59.12
PEmg 18.15
Current Ratio 1.09
PB Ratio 4.30
Dividend Yield 2.02%
Number of Consecutive Years of Dividend Growth 6

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $20,053,000,000
Total Current Liabilities $18,371,000,000
Long-Term Debt $5,554,000,000
Total Assets $49,316,000,000
Intangible Assets $20,472,000,000
Total Liabilities $30,898,000,000
Shares Outstanding (Diluted Average) 770,690,000

Earnings Per Share History

Next Fiscal Year Estimate $6.50
Dec2015 $5.72
Dec2014 $5.33
Dec2013 $4.92
Dec2012 $3.69
Dec2011 $2.61
Dec2010 $2.59
Dec2009 $2.05
Dec2008 $3.76
Dec2007 $3.16
Dec2006 $2.52
Dec2005 $1.92
Dec2004 $1.45
Dec2003 $1.52
Dec2002 -$0.31
Dec2001 -$0.12
Dec2000 $2.05
Dec1999 $1.90
Dec1998 $2.34
Dec1997 $2.00
Dec1996 $1.73

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.66
Dec2015 $4.98
Dec2014 $4.35
Dec2013 $3.63
Dec2012 $2.97
Dec2011 $2.68
Dec2010 $2.75
Dec2009 $2.78
Dec2008 $2.95
Dec2007 $2.40
Dec2006 $1.82
Dec2005 $1.28
Dec2004 $0.95
Dec2003 $0.80
Dec2002 $0.68
Dec2001 $1.33
Dec2000 $2.04

Recommended Reading:

Other ModernGraham posts about the company

7 Best Stocks For Value Investors This Week – 10/24/15
Honeywell International Inc. Valuation – October 2015 Update $HON
The 16 Best Stocks For Value Investors This Week – 8/1/15
Honeywell International Inc. Analysis – July 2015 Update $HON
21 Companies in the Spotlight This Week – 5/9/15

Other ModernGraham posts about related companies

3M Company Valuation – February 2016 Update $MMM
Raven Industries Inc Valuation – January 2016 Update $RAVN
Illinois Tool Works Inc Valuation – January 2016 Update $ITW
E I du Pont de Nemours & Co Valuation – November 2015 Update $DD
E I Du Pont de Nemours & Company Analysis – August 2015 Update $DD
E. I. Du Pont De Nemours and Company Quarterly Valuation – May 2015 $DD
Honeywell International Inc. Valuation – October 2015 Update $HON
Raven Industries Inc. Analysis – October 2015 Update $RAVN
Illinois Tool Works Inc. Analysis – October 2015 Update $ITW
3M Company Analysis – September 2015 Update $MMM

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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