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Honeywell (HON) Exhibits Bright Prospects, Headwinds Remain

Honeywell International Inc. HON stands to benefit from strength in its personal protective equipment, warehouse and workflow solutions as well as productivity solutions and services businesses in the quarters ahead. Solid momentum in the company’s short-cycle process solutions business and recovery in the commercial aerospace business are expected to drive its performance. For the ongoing year, it expects overall revenues in the range of $34.6-$35.2 billion with organic revenues projected to be up 4-6% year over year.

The company’s acquisition of Performix (September 2021) is predicted to strengthen its advanced portfolio of automation solutions. The Sparta Systems buyout (April 2021) has been enhancing its competency in digital transformation, industrial automation, and enterprise performance management solutions space. Also, its Ballard Unmanned Systems and Rocky Research buyouts (both in October 2020) have been boosting its prospects in unmanned aerial systems and power & thermal management markets, respectively.

Honeywell’s solid cash flow position adds to its strength. For 2021, it expects free cash flow between $5.3 billion and $5.6 billion. It also remains committed to rewarding its shareholders through share buyback programs and dividend payouts. In the first six months of 2021, the company repurchased shares worth $1,849 million and paid out dividends of $1,304 million. In October 2021, it hiked its quarterly dividend by 5.4%, marking its 12th dividend rate increase in the past 11 years.

However, weakness across its defense and space and commercial original equipment businesses might affect its performance in the near term. Also, rising costs and operating expenses along with high capital expenditure might adversely impact its margins and profitability. In the second quarter of 2021, its cost of sales and selling, general and administrative expenses increased 13.8% and 2%, respectively, year over year.

Its high-debt profile remains concerning. Exiting the second quarter, its long-term debt was $16,138 million, reflecting a marginal increase on a sequential basis. Any further rise in the debt levels can increase the company’s financial obligations.

It faces stiff competition from several of its peers in the industry like 3M Company MMM, Emerson Electric Co. EMR, and Zebra Technologies Corporation ZBRA.

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