Honeywell Facing Significant Margin And Recovery Uncertainty, But Quality Provides Support

Nobody knows exactly how the next 24-36 months are going to play out, particularly with respect to whether we see a V-shaped, U-shaped, or L-shaped recovery, but I feel confident in predicting that when the dust settles, Honeywell (HON) will still be an excellent company. I realize that may sound trite, but I think a company’s ability to make good decisions and generate long-term shareholder value can be overlooked when investors are freaking out about all of the uncertainty in the global economy.

I still believe that Honeywell has elevated margin risk, but I think that’s a little better-appreciated now. I am also still concerned about the recovery prospects for Honeywell’s longer-cycle businesses, which contribute about 40% of revenue. The shares have underperformed slightly since my last update and remain in a valuation grey zone. I’d be in no hurry to sell if I owned then, and the prospective return is decent (high single-digits), but I think there are better risk-adjusted opportunities; getting another chance to buy below $120 would be a different story and that’s something to watch for if there’s another pullback.

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Honeywell Facing Significant Margin And Recovery Uncertainty, But Quality Provides Support