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Can Aerospace Strength Drive Honeywell (HON) in Q1 Earnings?

Technology and manufacturing giant, Honeywell International Inc.HON , is scheduled to report first-quarter 2018 results on Apr 20, before the opening bell. For the quarter, the company anticipates solid revenues from its Aerospace Business, which constitutes the major portion of total revenues.

Last quarter, Honeywell reported earnings of $1.85 per share, delivering a beat of 0.5%. In the trailing four quarters, the company pulled off an average positive earnings surprise of 1.3%.

We expect Honeywell to score an earnings beat in the to-be-reported quarter as well.

Why a Likely Positive Surprise?

Our proven model shows that Honeywell has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Zacks ESP : Honeywell has an Earnings ESP of +0.46% as the Most Accurate estimate of $1.90 is pegged higher than the Zacks Consensus Estimate of $1.89. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Honeywell International Inc. Price and EPS Surprise

Honeywell International Inc. Price and EPS Surprise | Honeywell International Inc. Quote

Zacks Rank : The company carries a Zacks Rank #3, which when combined with a positive ESP makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Behind Better-Than-Expected Results

Honeywell remains well-positioned to gain from long-term expansion in markets like aerospace, facility automation and automotive turbochargers backed by its strong market share and product line-up. The company also intends to expand its presence in high-growth regions, with a flexible yet disciplined focus on cost and productivity. Furthermore, Honeywell's balanced mix of long and short-cycle businesses along with a decent organic growth in new products and expansion in high-growth regions augurs well for the company. Also, the company is building a robust pipeline of new products. Honeywell has regularly fine-tuned its portfolio, having sold about 60 of its units (accounting for $7 billion in sales) since 2002 and acquiring another 90 companies, thus contributing $14 billion to revenues over the same time frame. These factors bode well for the company's upcoming performance and are likely to offset some of the risks it faces.

Moreover, the company's strategic and operational initiatives to improve its business have provided a boost to financials over the past few quarters. For instance, the merger between the Transportation Systems and the Aerospace segments has enabled it to leverage on the shared business models as well as the engineering and technology similarities.

Amid this backdrop, the Zacks Consensus Estimate for first-quarter revenues from the Aerospace segment currently remains high at $3,697 million, reflecting growth of 4.3% year over year. Revenues from the Performance Materials and the Technologies segments are also anticipated to be strong, with the consensus estimate projected at $2,516 million compared with $2,069 million reported in the year-ago quarter. Meanwhile, the company's focus on investing in innovative technologies should help in maintaining its leadership position.

However, Honeywell is yet to witness signs of stabilization in a number of its major end markets. Also, in order to differentiate its products and prevent commoditization, the company has to continue developing and maintaining competitive products by adding innovative features. These, in turn, might increase R&D outlay, resulting in margin contraction.

Key Picks

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

Danaher Corporation DHR has an Earnings ESP of +1.45% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

American Financial Group, Inc. AFG has an Earnings ESP of +2.40% and a Zacks Rank of 2.

Crane Company CR has an Earnings ESP of +1.58% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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