Honeywell stock is soaring — why there’s plenty more room to run
Honeywell rose on Thursday after the growing conglomerate reported a quarterly increase and full-year guidance increase ahead of its first step next week towards splitting into three companies. Revenue rose 7% year over year to $10.41 billion in the third quarter ended Sept. 30, beating expectations of $10.11 billion, according to market data service LSEG. According to FactSet, organic sales increased 6% from the previous year; This was twice what Street expected. LSEG data showed adjusted earnings per share rose 9.3% year-over-year to $2.82, beating estimates of $2.57. HON YTD mountain Honeywell YTD While jumping more than 7% at press, Honeywell shares were still down roughly 2% year-to-date and 8% below their record close of just over $240 on July 3. Club shares, which are also one of the 30 names that make up the Dow Jones Industrial Average, are stuck in so-called spin purgatory. Next week’s spinoff from Solstice Advanced Materials is a good start to getting the stock out of the doghouse. The spin-off of the company’s remaining automation and aviation businesses in the second half of 2026 will complete the two-phase transformation. As of October 17, Honeywell shareholders will receive one share of Solstice for every four shares of Honeywell on October 30. Later that day, Solstice will begin trading separately under the ticker symbol “SOLS.” Honeywell’s code will continue to be “HON”. We plan to retain our Solstice shares and Honeywell shares when we acquire them. Bottom Line: With quarterly sales, earnings and organic growth exceeding expectations, perhaps the most important takeaway from the report is the turnaround in Honeywell’s largest and most important segment: aviation. Last time it blew expectations away. This rate recovered in the third quarter as customer inventories decreased and commercial original equipment sales began to grow again. Management sees the segment maintaining its momentum throughout the remainder of the year. Honeywell also reported a record backlog of $39.1 billion, up 11% year over year, excluding acquisitions; This is equivalent to approximately one year’s income. This growth was driven by an incredible 22% year-on-year increase in orders; this resulted in a bill-to-bill ratio of 1.1; This means the company is receiving orders faster than it can fulfill them. Order growth occurred in all four segments, which include Industrial Automation, Building Automation, and Energy and Sustainability Solutions, as well as Aerospace Technologies. Why we have it Honeywell is a provider of industrial technology to companies across a variety of industries. The planned three-part separation of the company should be a value-creating event for shareholders. Competitors: Emerson Electric, RTX, 3 Million Weight in portfolio: 2.3% Last purchase: September 11, 2025 Started: July 5, 2020 Even better, the team raised its full-year estimates for both sales and EPS after adjusting for the impact of the Solstice return and organic sales growth. With the upcoming Solstice return and aviation recovery, we continue to like Honeywell shares at current levels. These turns will support further growth and increase shareholder returns as they will allow each of the three new entities to operate in a more focused and efficient manner. Honeywell presents an attractive opportunity for investors patient enough to allow return dynamics to unfold. Management is proving to be effective operators, and this will be even more true once the spinoffs are completed. Therefore, we reiterate our 1 buy equivalent rating and $255 per share price target. Comments Honeywell’s third-quarter sales growth was driven by stronger-than-expected revenue across all major operating segments. Although segment margin was slightly lower than expected at 23.1 percent, segment profit of $2.41 billion still managed to exceed expectations, leading to an improvement in profitability. Aerospace Technologies’ third-quarter sales increased more than 15%, or 12% organically, to $4.51 billion. The segment margin narrowed year over year “due to commercial excellence and volume leverage being more than offset by cost inflation and acquisition-related headwinds,” the company said. However, it expanded sequentially thanks to improved volume leverage; More volume means fixed costs are spread over more units. It reduces costs per unit and provides more profit per unit. On the post-earnings call, management said commercial aviation original equipment returned to growth after pressure from customers to destock in the previous quarter. Destocking occurs when customers slow or pause orders to reduce existing inventory levels. Honeywell achieved double-digit order growth across Aerospace’s three subsegments (commercial aviation original equipment, commercial aviation aftermarket, as well as defense and aerospace) with a 1.2x claim-to-bill ratio. Industrial Automation sales fell 9% to $2.27 billion, but they managed to beat expectations. However, on an organic basis, sales increased by 1%. Management attributed the return to growth to “continued strength in perception, improvement in warehouse automation and stable process solutions performance as increases in smart energy and thermal solutions offset expected project delays.” Overall order growth benefited from growth in warehouse automation and process solutions. The contraction in segment margin was attributed to cost inflation. Building Automation sales grew 7.6% or 7% organically, while building products delivered organic growth for the fourth consecutive quarter. Although cost inflation weighed on profitability here too, the segment was still able to report margin expansion as cost pressure was more than offset by volume leverage and “commercial excellence”. The segment reported a bill-to-bill ratio of 1.1. Energy and Sustainability Solutions sales increased approximately 11.5% year over year. However, they decreased by 2% on an organic basis. Management said orders increased by double digits on a percentage basis compared to the previous year, excluding the impact of mergers and acquisitions. Guidance Management raised its full-year sales and adjusted earnings per share outlook after adjusting for the impact of the Solstice spinoff in late October. Organic growth guidance was also increased. Despite changes to operating cash flow guidance, the team did not change its free cash flow projection. The segment margin outlook was also revised lower. This is where Honeywell’s full-year guidance now relies on some key metrics. (Note: We do not provide estimates for the comparison, as our consensus estimates do not appear to reflect the Solstice spinoff and are therefore not an apples-to-apples comparison under the updated guidance.) Sales rose to $40.6 billion, up from $40.1 billion previously, when adjusting for the impact of the Solstice spin-off. Organic sales growth increased approximately 6% compared to the previous range of 4% and 5%. Adjusting for the impact of the solstice return, EPS was adjusted to a range of $10.60 to $10.70, from a previous range of $10.24 to $10.44. Segment margin expectations have been trimmed slightly, with management now targeting a range of 22.9% to 23%, down from the previously forecast range of 23% to 23.2%. The operating cash flow forecast was also reduced to a range of $6.4 billion to $6.8 billion, down from the previous range of $6.7 billion to $7.1 billion. However, free cash flow guidance reiterated from $5.2 billion to $5.6 billion after adjusting for the Solstice return. (Jim Cramer’s Charitable Trust is a long-time HON. See here for a complete list of its stocks.) When you subscribe to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trading alert before buying or selling a stock in his charitable foundation’s portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing the trading alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, TOGETHER WITH THE DISCLAIMERS. NO CIVIL OBLIGATIONS OR DUTIES EXIST OR SHALL BE RESULTING FROM YOUR RECEIVING ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT GUARANTEE IS MADE.
