Company Name: Honeywell International Inc.
Entry Price: $164
Target Price: $185
Projected Yield: 12.80%
Time Line: 3 to 6 months
Honeywell is a large US corporation that focuses on electronic control and automation system production. The main areas include aerospace equipment, building operation technologies, automotive equipment, and turbochargers.
What's the Idea?
Earn on the stock that may rise as the businesses become more responsive to the pandemic crisis.
Buy Honeywell Shares >>
Why Trade Honeywell?
Reason 1: Resource Mobilization in Relevant Business Areas
The current crisis had a strong impact on Honeywell's sales, with all areas showing a decline in earnings. The aerospace business was hit hardest, with sales down 28% in Q2 2020. Overall, the company's earnings declined by 12% in the first six months of 2020.
In order to mitigate the negative impact of the pandemic, the company started redirecting its resources to more relevant areas, such as:
➤ Creating a new protective mask and vaccine packaging production lines
➤ Manufacturing of equipment for UV irradiation of aircraft cabins
➤ Providing technical solutions for determining body temperature in public areas
Switching to more relevant and high-potential areas will help offset the temporary decline in earnings in other segments of the company. This will keep the operating cash flow at an acceptable level and diversify the business. The implementation of this strategy may have a positive impact on the Honeywell stock price.
Reason 2: Cost Optimization
The company took measures to optimize costs and operating activities. As such, Honeywell cut work schedules in some business areas, as well as cut owner costs and board compensation. Fixed production costs are also scheduled for optimization.
These measures will help reduce the costs by $1.4B to $1.6B in 2020. As soon as in the first six months of 2020, the company already reduced costs by $0.7 B. The cost optimization strategy will help to increase business margins and maintain a stable operating cash flow.
Reason 3: Maintaining Financial Sustainability
Despite a significant decline in earnings, the Honeywell still has a strong financial position. In Q2 2020, the operating profit margin was at 18.50%, while the earnings per share were at $1.26. The company has a low leverage ratio of 0.90x and has $15.1B in liquidity. This allows Honeywell to be comfortable during the current crisis.
There are no problems with a lack of liquidity: over the past quarter, the free cash flow amounted to $1.3B. Honeywell will be able to maintain its current quarterly dividend payout, which rose to $0.90 per share in 2020. As the situation in the global economy improves, the company will be able to restore its sales in key areas and reach the pre-crisis growth rate, which might prove an additional stock price driver.
How to Use the Investment Idea
- Buy Honeywell shares at €164.
- Allocate no more than 3-4% of your portfolio amount. To build a balanced portfolio, you can use our analysts' recommendations for an USD or a EUR portfolio.
- Sell the stock when the price is at $185 per share.
How to Buy Honeywell Shares?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type HON.US (Honeywell ticker in the NYSE) in the search box, and select Honeywell Int'l Inc. in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that shows up, type HON.US (Honeywell ticker in the NYSE) and select Honeywell Int'l Inc. in the results. You will then see Honeywell stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
Buy Honeywell Shares: Don't miss it while the company is confident about the recovery!
Buy Honeywell Shares >>
*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.