Honeywell Q2 Earnings Preview: What’s in the Offing?

Honeywell International (HON) is scheduled to report second-quarter 2021 earnings on July 23.

Honeywell is a global technology and manufacturing conglomerate. Over the past year, shares of the company have jumped 48.4%, trading at over $229. A strong set of numbers in Q2 could help the stock jump to new highs, so let’s take a closer look at what analysts on the Street are expecting.

Q2 Expectations

For Q2, the Street expects Honeywell to report adjusted EPS of $1.94 and revenues of $8.62 billion.

Meanwhile, the Earnings Whisper number, or the Street’s unofficial view on earnings, stands at $1.98 per share. (See HON stock charts on TipRanks)

For Q2, Honeywell expects EPS to land in the range of $1.86 and $1.96. The guidance reflects a growth of 48%- 56% on a year-over-year basis.

For full-year 2021, the company expects earnings to be in the range of $7.75 – $8.00 per share, and revenues to come in between $34 billion – $34.8 billion.

Honeywell’s Prior Quarter Snapshot

In the last-reported first quarter, revenues came in at $8.45 billion, ahead of consensus estimates of $8.06 billion.

Meanwhile, adjusted earnings of $1.92 per share came in above analysts’ estimates of $1.79 per share. However, earnings were down 13% year-over-year.

Factors to Note about Honeywell

Honeywell generates revenues primarily from its various segments, namely Aerospace Segment, Honeywell Building Technologies, Performance Materials and Technologies, and Safety and Productivity Solutions.

Coming to the Aerospace Segment, quarterly revenues were down 22% year over year in Q1 due to the ongoing impact of reduced flight hours and lower volumes.

Going into Q2, HON stands to benefit from strong momentum in its defense and space business, supported by stable U.S. government defense budgets. In addition, the recovery of the business aviation aftermarket, as well as expanding opportunities in aerial systems and urban air mobility markets, are projected to have improved outcomes in this area.

Turning to Safety and Productivity Solutions, sales in this segment were up 47%, driven by strength in warehouse and workflow Solutions, personal protective equipment, and productivity Solutions.

The trend is expected to have continued in the upcoming quarter driven by increasing demand for personal protective equipment and growth in productivity solutions and services.

Another segment, Honeywell Building Technologies, returned to growth in Q1 with revenues increasing 2% year-over-year.

Strong demand for building management systems, security and services, and commercial fire products, are likely to fuel the trend in the following quarter. Also, new customer wins are expected to have aided the results in this segment.

The Performance Materials and Technologies segment is likely to have gained from new product introductions and strength across the company’s process solutions business. However, soft oil and gas capital expenditure, persistent weakness in its universal oil products (UOP) business and automation project delays in process solutions business are expected to have hurt its top line to some extent.

Honeywell’s focus on acquisitions to expand its existing product lines is another major element the investors should look into. During Q1, Honeywell agreed to buy a majority investment in Fiplex Communications in order to improve first responder and building occupant safety. Fiplex devices and software will complement the company’s current offering in the fast-growing in-building connectivity industry, thus expanding its revenues in this segment.

On the flip side, continued headwinds in its commercial original equipment sector due to lower air transport and difficult original equipment construction rates are projected to have an impact on its performance. Low international air-transport flight hours as a result of the coronavirus outbreak could also impact the company’s commercial aftermarket business prospects.

Honeywell’s Chairman and CEO, Darius Adamczyk said, “As we look to the rest of 2021 and beyond, we are well-positioned for the recovery to come. Our new offerings in growing markets like life sciences are gaining traction and the industries that were hardest hit by the pandemic are expected to improve throughout the year.”

Following the first-quarter report that exceeded expectations, investors will be waiting to see whether the company can sustain growth across its business segments.

Analyst Recommendations on Honeywell

Ahead of the second-quarter earnings announcement, Deutsche Bank analyst Nicole DeBlase reiterated a Buy rating on the stock but decreased the price target to $245.00 from $246.00. This implies 6.7% upside potential to current levels.

DeBlase expects the company to post better-than-expected earnings in the upcoming quarter.

On the other hand, on July 12, Wolfe Research analyst Nigel Coe reiterated a Buy rating on the stock and increased the price target to $259.00 from $239.00. This implies 12.8% upside potential to current levels.

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 8 Buys and 4 Holds. The average HON price target of $242.40 implies 5.6% upside potential from the current levels.

HON scores a “Perfect 10” from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.