Conglomerates Stocks

Honeywell International Inc Valuation – June 2018 $HON

Company Profile (excerpt from Reuters): Honeywell International Inc., incorporated on November 24, 1999, 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.

HON Chart

HON data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HON – June 2018

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 $107,565,365,180 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 124.28% Pass
6. Moderate PEmg Ratio PEmg < 20 25.66 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.17 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 1.86 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 $5.61
MG Growth Estimate 4.36%
MG Value $96.64
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $81.36
MG Value based on 0% Growth $47.70
Market Implied Growth Rate 8.58%
Current Price $144.01
% of Intrinsic Value 149.01%

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 Overvalued after growing its EPSmg (normalized earnings) from $4.35 in 2014 to an estimated $5.61 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.58% 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 below the price.

At the time of valuation, further research into Honeywell International Inc. revealed the company was trading above its Graham Number of $64.03. The company pays a dividend of $2.74 per share, for a yield of 1.9% Its PEmg (price over earnings per share – ModernGraham) was 25.66, which was below the industry average of 30.55, 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 $-23.11.

Honeywell International Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$23.11
Graham Number $64.03
PEmg 25.66
Current Ratio 1.36
PB Ratio 6.17
Current Dividend $2.74
Dividend Yield 1.90%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $25,587,000,000
Total Current Liabilities $18,755,000,000
Long-Term Debt $12,738,000,000
Total Assets $60,948,000,000
Intangible Assets $22,982,000,000
Total Liabilities $43,174,000,000
Shares Outstanding (Diluted Average) 761,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.92
Dec2017 $2.14
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.61
Dec2017 $4.61
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

Recommended Reading:

Other ModernGraham posts about the company

Honeywell International Inc Valuation – July 2017 $HON
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

Other ModernGraham posts about related companies

General Electric Co Valuation – February 2018 $GE
3M Company Valuation – February 2018 $MMM
Raven Industries Inc Valuation – September 2017 $RAVN
Illinois Tool Works Inc Valuation – August 2017 $ITW
Honeywell International Inc Valuation – July 2017 $HON
Carlisle Companies Inc Valuation – Initial Coverage $CSL
ITT Inc Valuation – Initial Coverage $ITT
3M Co. Valuation – December 2016 $MMM
E I du Pont de Nemours & Co Valuation – August 2016 $DD
3M Company Valuation – August 2016 $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.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top