Honeywell International Inc Valuation – July 2017 $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 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  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. is a technology and manufacturing company. The Company operates through four segments: Aerospace, Home and Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions. The Company’s Aerospace segment supplies products, software and services for aircraft and vehicles that it sells to original equipment manufacturers (OEMs) and other customers. The Home and Building Technologies segment provides products, software, solutions and technologies that help owners of homes stay connected and in control of their comfort, security and energy use. The Performance Materials and Technologies segment is engaged in developing and manufacturing materials, process technologies and automation solutions. The Safety and Productivity Solutions segment is engaged in providing products, software and connected solutions to customers that manage productivity, workplace safety and asset performance.

HON Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of HON – July 2017

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 $102,628,052,608 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.36 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 130.83% Pass
6. Moderate PEmg Ratio PEmg < 20 21.52 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.15 Fail
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 1.36 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.78 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

EPSmg $6.28
MG Growth Estimate 10.98%
MG Value $191.37
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $91.11
MG Value based on 0% Growth $53.41
Market Implied Growth Rate 6.51%
Current Price $135.19
% of Intrinsic Value 70.64%

Honeywell International Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $3.63 in 2013 to an estimated $6.28 for 2017.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.51% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Honeywell International Inc. revealed the company was trading above its Graham Number of $64.  The company pays a dividend of $2.45 per share, for a yield of 1.8%  Its PEmg (price over earnings per share – ModernGraham) was 21.52, which was below the industry average of 26.48, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.05.

Honeywell International Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$14.05
Graham Number $64.00
PEmg 21.52
Current Ratio 1.36
PB Ratio 5.15
Current Dividend $2.45
Dividend Yield 1.81%
Number of Consecutive Years of Dividend Growth 6


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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2017
Total Current Assets $23,580,000,000
Total Current Liabilities $17,281,000,000
Long-Term Debt $11,181,000,000
Total Assets $54,779,000,000
Intangible Assets $22,419,000,000
Total Liabilities $34,456,000,000
Shares Outstanding (Diluted Average) 773,900,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.15
Dec2016 $6.20
Dec2015 $6.04
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $6.28
Dec2016 $5.65
Dec2015 $5.08
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

Recommended Reading:

Other ModernGraham posts about the company

Honeywell International Inc Valuation – February 2016 $HON
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

Other ModernGraham posts about related companies

E I du Pont de Nemours & Co Valuation – August 2016 $DD
3M Company Valuation – August 2016 $MMM
General Electric Co Valuation – July 2016 $GE
Illinois Tool Works Inc Valuation – July 2016 $ITW
Raven Industries Inc Valuation – July 2016 $RAVN
E.I. du Pont de Nemours Valuation – February 2016 $DD
Honeywell International Inc Valuation – February 2016 $HON
3M Company Valuation – February 2016 Update $MMM
Raven Industries Inc Valuation – January 2016 Update $RAVN
Illinois Tool Works Inc Valuation – January 2016 Update $ITW


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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