Honeywell About To Emerge As A Multiyear, Multi-Theme Growth Story

 

I’ve always been of the belief that sooner or later valuation matters, and I do believe the somewhat “robust” valuation of Honeywell (HON) explains why the shares have slightly lagged the larger industrial group in the six months since my last update. This comes despite an emerging shift toward longer-cycle names and a set-up for Honeywell that I believe has the company well-placed for at least three to four years of above-peer growth, with attractive exposures to a variety of appealing end-markets.

I’m not arguing that Honeywell is fundamentally cheap – this is much more of a directional/secular call than a valuation call. What’s more, the industrial sector trades at multiples above where it historically has relative to margins, ROIC, et al (low rates certainly help). In an “everything is expensive” market, though, I think Honeywell should trade at more than a 10% or so premium to the average industrial’s ’22 EV/EBITDA multiple, and even though I don’t like the long-term prospective returns, these shares could still be a relative outperformer as the longer-cycle opportunities emerge.

 

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Honeywell About To Emerge As A Multiyear, Multi-Theme Growth Story