Citi Believes Honeywell Can Still Achieve EPS Growth In A Tough Market

Citi believes Honeywell International Inc. (NYSE: HON) can continue to generate about 10 percent EPS growth in a tough market, driven by some ramp-up in organic growth, an increased focus on breakthrough initiatives, strong execution and a continued increase in M&A activity.

Q2 Results And Q3 Expectations

Despite relatively disappointing second-quarter core growth of -2 percent versus Citi estimates of -0.4 percent, the brokerage is "impressed" with +110bp of operational improvement in a declining growth environment.

Analyst Andrew Kaplowitz said the company's initial third-quarter core growth guidance of flat to 1 percent implies fourth-quarter core growth close to 3 percent.

Meanwhile, Citi cut its third-quarter core growth estimate to 0.5 percent from 1.9 percent, with more now pushed into the fourth quarter.

Related Link: Bernstein Analysts Have 6 Takeaways From Honeywell's Q2

"Strong UOP orders should be a key to a second half ramp within PMT, while easier S&PS comparisons and still resilient HGR growth (China and India) could lead to better performance in ACS," Kaplowitz wrote in a note.

"Continued potential weakness in Defense & Space and Comm'l AeroOE weakness (mainly biz jets) is a concern, partly mitigated by potential mid-single digit continued growth in Comm'l Aero AM," Kaplowitz added.

Further, the analyst said Honeywell's free cash flow (FCF) of $1.3 billion and flexible balance sheet could help the company pursue more acquisitions such as Intelligrated, which closes in the third quarter.

Kaplowitz maintains his EPS estimates for 2016 and 2017 at $6.65 and $7.35, respectively, while keeping the price target unchanged at $132 (a potential return of 14.2 percent). The analyst has a Buy rating on the stock.

At time of writing, shares of Honeywell had gained 0.16 percent on the day to $115.80.

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