Honeywell Living Up To Its Safe Haven Reputation

In a quarter where it has becoming increasingly clear that short-cycle industrial markets are slumping and long-cycle markets are starting to wobble, Honeywell’s (HON) steady performance and minor beat-and-raise for the second quarter certainly solidifies the safe haven credentials that have been part of my bullish thesis on the stock. With a strong Aerospace segment and steady performance in Building Tech and PMT offsetting temporary weakness in Safety and Productivity, there’s not much that concerns me about the performance for the company.

What does concern me is the valuation. Although Honeywell has modestly outperformed industrials since my last update, almost all of that outperformance came in the post-earnings jump. Moreover, I’m concerned that we’re going to see a downward revision cycle after this earnings reporting cycle across industrials and a reset in valuations as investors accept that the second-half rebound thesis is looking pretty shaky. I do believe that Honeywell’s valuation could continue to exceed historical norms as institutions flock to own one of the few industrial stocks that’s “working”, but I don’t like playing the game of assuming that above-trend valuation will continue to expand at a time when the sector is seeing downward re-ratings.

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Honeywell Living Up To Its Safe Haven Reputation