Honeywell Looks Vulnerable To Sentiment And Margin Shock, But Still Attractive

The grim reality is that nobody really knows anything right now when it comes to assessing the impact of Covid-19 on the U.S. economy (let alone the global economy), nor how long it will take to get back to business as usual. While the market has recovered pretty strongly over the last couple of weeks, taking Honeywell (HON) shares up more than 40% from the point of peak panic, I don’t necessarily think we’ve seen the last shoe drop. Given the difficulties in predicting end-market demand in this environment, I’d be surprised if Honeywell didn’t pull guidance entirely. I also see a risk of sharp decremental margins – probably not in the first quarter, but possibly in the second and third quarters – and I believe that may shock the Street and rattle sentiment again. On top of that, a significant chunk of Honeywell’s revenue looks to me to be at risk beyond just a sharp correction that resolves by year-end.

All of this doom and gloom aside, these are the times that value investors wait for. Honeywell’s valuation isn’t quite where I’d like to be after this strong rally, but it’s good enough for this as a long-term holding and certainly at a level where I’d watch this for any potential “double-dip” in the industrial sector as companies start reporting March quarter earnings.

Click here to continue:
Honeywell Looks Vulnerable To Sentiment And Margin Shock, But Still Attractive