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Honeywell (HON) Poised For Long-Term Growth, Risks Remain

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On Mar 28, we updated the research report on industrial goods manufacturer, Honeywell International Inc.HON .

With a flexible yet disciplined focus on cost and productivity, Honeywell aims at increasing its presence in high-growth regions. Population growth, urbanization and infrastructure development continue creating attractive opportunities across its entire portfolio. The company's balanced mix of long- and short-cycle businesses along with a decent organic growth in new products and expansion in high-growth regions augur well on a long-term perspective. Additionally, the company is building a robust pipeline of new products.

Honeywell is well-positioned to gain from long-term expansion in markets like aerospace, facility automation and automotive turbochargers on the back of its strong market share and product lineup. The company has been boosting its sales outside the United States, particularly in emerging markets like China. As its markets expand, demand for Honeywell's construction, automobiles and airplanes products will grow. Management is also focused on reducing costs and improving productivity. This operational focus should drive higher profitability in the future.

Honeywell's shares have outperformed the industry in the last six months, with an average return of 1.8% against a decline of 11.9% for the latter.

The company's diversified business portfolio has the potential to earn consistent above-average returns and mitigate operating risks. Honeywell's diligent focus on working capital management, free cash flow generation and a conservative balance sheet remain key positives amid a challenging macroeconomic environment.

However, Honeywell is susceptible to material price inflation, hurting its profitability. Although the company's proactive restructuring initiatives have positioned it to navigate better than many of its peers, it is yet to witness signs of stabilization in a number of its major end markets.

The company is highly dependent on its supply chain to scale production and adjust delivery of long-lead time products during volatile demand environment. Honeywell also faces unfavorable foreign currency movements, which affect its top-line growth.

A change in the U.S. government's defense and aerospace funding could adversely impact sales of the Aerospace segment's products and services. The high research and development costs could also be a drag on the segment's margin and dent the company's profitability.

Nevertheless, we remain impressed with the inherent long-growth potential of this Zacks Rank #3 (Hold) stock. Better-ranked stocks in the industry include Raven Industries, Inc. RAVN , sporting a Zacks Rank #1 (Strong Buy), and Crane Co. CR and Leucadia National Corporation LUK , carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Raven has a long-term earnings growth expectation of 10%. It exceeded estimates thrice in the trailing four quarters, with an average positive earnings surprise of 20.2%.

Crane has a long-term earnings growth expectation of 10.4%. It topped estimates in each of the trailing four quarters, with an average positive earnings surprise of 2.6%.

Leucadia has a long-term earnings growth expectation of 18%. It surpassed estimates thrice in the trailing four quarters, with an average positive earnings surprise of 6.6%.

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Honeywell International Inc. (HON): Free Stock Analysis Report

Leucadia National Corporation (LUK): Free Stock Analysis Report

Raven Industries, Inc. (RAVN): Free Stock Analysis Report

Crane Company (CR): Free Stock Analysis Report

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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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