Wall Street is waking up to the notion that industrial powerhouse Honeywell (HON) is no longer just a sleepy industrial but very much a tech play powering an array of critical industries.
After completing the spin-offs of its home heating and ventilation and transportation businesses late last year, the Honeywell of today is attacking the aviation industry with new software for airplanes. Meanwhile, it’s also diving deeper into warehouse automation solutions and technologies to add smart capabilities to commercial buildings.
For Honeywell, the tech push gives it access to faster growing markets and the prospect for a more recurring revenue stream.
And with that pivot to a higher margin software/technology centric business model, comes richer profit margins and a justified stock price increase.
Honeywell’s stock has popped 28% this year, almost two times greater than the return for the Dow Jones Industrial Average. The stock has also narrowly outperformed the industrial-minded companies that Honeywell is normally compared to on Wall Street: General Electric (GE), Danaher (DHR) and United Technologies (UTX).
The company’s second quarter organic sales rose a solid 5%, with gains across all business segments. Operating profit margins rose in every segment except for safety and productivity solutions. In almost all cases, new technologies in each segment were highlighted by executives as the drivers of the strong quarter.
Honeywell slightly lifted its full year organic sales and earnings per share guidance.
“Bottom line is that this quarter typifies why you buy Honeywell,” Goldman Sachs analyst Joe Ritchie wrote after the quarter. “At a time when the Multis [industrials] are facing a challenging backdrop as we previewed in second quarter EPS preview: shuffling ratings for rocky road ahead, Honeywell delivered a beat-and-raise. In our view, this highlights the strength of the Honeywell business model and supports Honeywell’s status as one of the best executors in this space.”