Honeywell Stock Trading at a Premium Value: Should You Buy, Sell or Hold?

The industrial conglomerate Honeywell International Inc. HON is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 20.3X compared with the Zacks Diversified Operations industry’s 16.67X. With a Value Score of D, HON stock may not present a compelling value proposition at these levels.

The current valuation is above its five-year median of 19.84X. In comparison with HON’s valuation, its peers 3M Company MMM, RTX Corporation RTX and Griffon Corporation GFF are trading at 18.72X, 21.22X and 11.51X, respectively. The company’s premium valuation compared with the broader industry raises concerns.

Valuation Remains an Overhang for Honeywell

HON Stock’s Price Performance

Year to date, Honeywell stock has lost 5.2% against the industry’s 1.8% growth. In comparison, the S&P 500 has declined 3.3% in the same period. The company has also underperformed its key rivals like RTX and Griffon. Over the same time frame, RTX and Griffon have returned 15.3% and 1%, respectively.

HON’s YTD Price Performance

Ongoing Challenges Faced by Honeywell

Honeywell has been witnessing persistent weakness in the Industrial Automation segment. Softness in the warehouse and workflow solutions businesses, due to lower demand for projects, has been affecting the segment's performance. Also, the weakened demand for its products and solutions within the sensing and safety technologies business is worrisome.

Continued softness in the warehouse automation business, owing to lower investments in the market, remains concerning for the segment. In fourth-quarter 2024, Honeywell’s Industrial Automation segment’s sales declined 1% on a year-over-year basis. For 2025, it anticipates the Industrial Automation segment’s organic sales to decline in the low-single digits.

High long-term debt remains a major concern for Honeywell. Its long-term debt in the last five years (2020-2024) increased 9.3% (CAGR). Exiting 2024, HON’s long-term debt was $25.5 billion, higher than $16.6 billion at 2023-end. The increase in its debt level was primarily attributable to the funds raised for the Civitanavi Systems, CAES, Global Access Solutions and LNG acquisitions. Considering its high debt level, its cash and cash equivalents of $10.6 billion do not look impressive. 

Also, interest expenses and other financial charges in fourth-quarter 2024 remained high at $291 million, reflecting an increase of 44.1% year over year. Exiting 2024, its long-term debt and current maturities totaled $26.83 billion. High debt levels can increase its financial obligations and prove detrimental to profitability moving ahead.

HON has been dealing with the adverse impacts of the high cost of sales and operating expenses. In 2024, its cost of sales rose 3.7% year over year to $23.8 billion, while selling, general and administrative expenses increased 6.6% to $5.5 billion. The company incurred high costs and expenses related to investment in digital infrastructure and business integration activities.

Honeywell also operates in the highly competitive aerospace, industrial and building automation markets, comprising well-recognised providers of highly engineered products. One of its peers, 3M Company, operates as a diversified technology firm and serves the aerospace, transportation, electronics, safety and industrial end markets. Strength in 3M Company’s Safety & Industrial and Transportation & Electronics units, along with accretive acquisitions, has been driving its performance.

Major Developments for HON

Honeywell has been actively following its business transformation strategy that aims to unlock value for its shareholders. The company has confirmed that it would spin off its Aerospace business.

As part of its business portfolio transformation strategy, the company also plans to divest its Advanced Materials business and earlier entered into a deal to divest its Personal Protective Equipment unit. This will result in the creation of three publicly listed companies - Honeywell Automation, Honeywell Aerospace and Solstice Advanced Materials.

Honeywell Automation will operate as a pure-play automation leader with a global scale and robust installed base. Honeywell Aerospace will produce technologies for plane cockpits while Solstice Advanced Materials will focus on solutions for sectors such as healthcare.

The planned separation is anticipated to be completed in the second half of 2026 in a tax-free manner to HON’s shareholders.

Downward Earnings Estimate Revisions

Reflecting the abovementioned headwinds, earnings estimates for HON have moved down over the past 30 days. Earnings estimates for first-quarter 2025 and 2025 have decreased 2.2% and 1.1%, respectively. Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Conclusion

Honeywell’s market leadership position, diversified product portfolio and strong dealer network provide it with a competitive advantage to leverage the long-term demand prospects in aerospace and industrial markets. However, HON has been facing several challenges, including weakness in the industrial automation market, high debt level and rising expenses.

The downward estimate revision activity in earnings and expensive valuation warrants a cautious approach for existing investors. Potential investors should consider waiting for clearer signs of recovery before investing in this Zacks Rank #4 (Sell) stock.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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