Analyst Downgrades Honeywell Over Supply Chain Headwinds, Sluggish Defense Market

Honeywell International Inc HON shares dropped 1.7% on Wednesday after the stock got hit by a Wall Street downgrade.

The Analyst: Bank of America analyst Andrew Obin downgraded Honeywell from Buy to Neutral and cut his price target for $270 to $245.

The Thesis: In a note, Obin said Honeywell faces near-term headwinds, including supply chain issues and sluggish defense and space markets. Honeywell management specifically mentioned supply chain disruptions as a reason why the company’s fourth-quarter revenue is trending toward the lower end of its guidance range. Obin said these supply chain headwinds will likely persist through the first half of 2022.

He said there are plenty of things to like about Honeywell’s long-term outlook, and the stock deserves its premium valuation relative to peers.

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He also said Honeywell’s long-term demand is strong given orders were up 10% year-over-year in October and the company’s backlog was up 7% in the third quarter. However, Obin said the potential for upside earnings revisions in the near-term appears to be limited.

“Like the majority of our multi-industrial coverage, HON’s valuation is elevated relative to history,” Obin said.

While he still believes Honeywell is priced below the value of the sum of its parts, Obin said the stock is unlikely to expand its earnings multiple further in the near-term.

Bank of America is projecting 11.2% EPS growth and 8.9% revenue growth for Honeywell in 2022.

Benzinga’s Take: Obin’s language suggests the downgrade may be more about the opportunity cost of investing in Honeywell stock for the next six months than any long-term issues with the company or its stock. Investors considering buying Honeywell should check back in a couple of quarters to see if Honeywell’s near-term visibility and Obin’s outlook have improved.