It’s entirely normal for the Street to anticipate recoveries, running the stocks ahead of actual turns in the year-over-year results. So while I’m little surprised to see the magnitude of Honeywell’s (HON) outperformance over the past six months, a lot of that has to do with expanding multiples across the industrial space, as actual earnings revisions haven’t been quite so powerful.
Valuation is problematic. I think Honeywell is a very well-run company with a lot of attractive long-term opportunities. The reality, though, is that the S&P 500 screens as historically expensive by most metrics (PE, P/BV, EV/EBTIDA, P/FCF, et al), and the industrial sector is a little expensive to the S&P 500 relative to historical norms (about 10% or so). On top of that, Honeywell doesn’t screen as a particularly cheap industrial relative to its peers. With prospective returns in the mid-single-digits, I think there are better names to consider.
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