The industrial conglomerate Honeywell International Inc. HON is in the headlines nowadays as it is reportedly considering a strategic restructuring of the business, which includes potential breakups.

Last month, news surfaced that the company is considering divestment of key businesses as part of its business transformation strategy that aims to unlock values for its shareholders. The company announced that it has made significant progress on the possible spinoff of its Aerospace business. As part of the strategy, it also plans to divest its Advanced Materials business and it has entered into a deal to spin off its Personal Protective Equipment unit.

Amid this, HON stock moved below its 50-day simple moving average on Jan. 6. Closing at $220.63 in the last trading session, the stock is trading below its 52-week high of $242.77 but higher than its 52-week low of $189.66.

HON’s 50-Day SMA

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Considering the past month's price movement, the stock was seen underperforming the benchmark as well as its major peers. The company’s shares have lost 1.9% compared with the S&P 500’s 0.7% decline. Shares of its key rivals like 3M Company MMM and RTX Corporation RTX are up 1% and down 1.5%, respectively. However, the stock has outperformed the Zacks Diversified Operations industry, which declined 5.2% over the same time frame.

1-Month Price Performance

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The recent decline in HON’s stock price led some investors to wonder whether to buy, sell or hold the stock. Let’s understand the company’s competency as a leading industrial conglomerate to better analyze how to play the stock amid the recent price decline.

Factors Influencing Honeywell’s Performance

Investors can take confidence from the fact that Honeywell is witnessing strong momentum across its businesses. In the third quarter of 2024, sales from the company’s commercial aviation aftermarket business increased 8% year over year, driven by solid demand in the air transport and business aviation markets. Also, strength in the commercial aviation original equipment business, backed by an improvement in build rates and an increase in air transport hours, has been favorable for the Aerospace business.

However, as part of its business portfolio transformation strategy, the company is considering selling its Aerospace business. It will provide an update on the same when it reports its fourth-quarter 2024 earnings.

Solid demand for its products and solutions, led by increasing building projects, particularly in India and Saudi Arabia will likely be beneficial for the Building Automation segment. Strength in the advanced materials business, driven by higher demand for specialty chemicals & materials and fluorine products, bodes well for the Energy and Sustainability Solutions segment.

Exiting the third quarter, HON’s overall backlog grew 10% year over year to $34 billion. For 2024, it expects overall revenues to be in the $38.6-$38.8 billion range, with organic revenues expected to increase 3-4% on a year-over-year basis.

Honeywell has announced several strategic actions over the past year to boost its organic growth and simplify its business portfolio. This includes some acquisitions made by the company, which have strengthened its business. This includes the acquisitions of Civitanavi Systems S.p.A. (October 2024), CAES Systems Holdings (September 2024) and Air Products’ liquefied natural gas (LNG) process technology and equipment business (September 2024). This apart, in June 2024, it acquired Carrier’s Global Access Solutions business for an all-cash deal of $4.95 billion.

HON’s commitment to rewarding its shareholders through dividends and share buybacks is also encouraging. In September 2024, it hiked its quarterly dividend by approximately 5% to $1.13 per share. This marks the company’s 15th consecutive dividend hike since 2010. In the first nine months of 2024, it paid out dividends of $2.16 billion and repurchased shares worth $1.2 billion.

Few Near-Term Concerns Prevail

Weakness in the warehouse and workflow solutions businesses due to lower demand for projects has been affecting the Industrial Automation segment's performance (sales declined 5% in the third quarter). Continued softness in the warehouse automation business, owing to lower investments in the market, remains a concern for the segment. For 2024, it anticipates that the Industrial Automation segment’s organic sales will decline in the high-single digits.

The company exited the third quarter with long-term debt of $25.9 billion. The high 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, the stock looks more leveraged than the industry. Its total debt-to-capital ratio is currently 0.59, higher than 0.26 of the industry.

Stock Valuation

Honeywell is currently trading at a forward 12-month P/E of 20.01X, at a premium compared with the industry’s 15.06X. The stock is also not cheap when compared with its peer Emerson Electric Co. EMR, which is currently trading at 19.89X.

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Estimate Revision Trend

Amid these, the company’s earnings estimates for 2024 have decreased 0.9% to $9.73 over the past 30 days, and the same for 2025 has increased 0.7% to $11.01.

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Should You Invest in HON Right Now?

Despite Honeywell’s several upsides and impressive dividend pay-out trend, the near-term challenges, such as weakness in the Industrial Automation unit and high debt level, are limiting this Zacks Rank #3 (Hold) company’s near-term prospects. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains and provide a better entry point.

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

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