Honeywell price target rises to $275 at CNBC after post-spinoff quarter

The Honeywell price target at CNBC’s Investing Club moved to $275 from $250 after Honeywell Technologies reported a stronger-than-expected automation quarter and raised parts of its outlook. For everyday investors, the move highlights how Wall Street is starting to judge the post-spinoff company on its remaining automation businesses rather than the aerospace unit it just separated.

Honeywell Technologies shares rose more than 5% Thursday even as the broader market sold off, according to CNBC. Honeywell Aerospace, now trading separately as HONA after being spun off at the end of the quarter, fell about 6% after aerospace sales and segment profit came in below expectations, CNBC reported.

For the second quarter ended June 30, Honeywell Technologies reported revenue of $9.72 billion, up 4.3% from a year earlier and above the $9.5 billion consensus estimate compiled by LSEG, according to CNBC. Adjusted earnings per share were $4.52, down 4.2% year over year, versus the $4.27 LSEG estimate cited by CNBC.

Why did Honeywell stock rise after earnings?

Investors focused on the businesses that remain inside Honeywell Technologies after the aerospace separation. CNBC said sales and segment profit beat expectations across the three non-aerospace automation units: Building Automation, Process Automation and Industrial Automation.

Honeywell Technologies makes hardware and software used to automate operations in buildings, factories and supply chains, according to CNBC. Automation matters to investors because it can tie growth to corporate spending on efficiency, industrial production and building systems, rather than only to one technology theme.

Orders were also a bright spot. CNBC reported that total orders rose 16% organically, while the company’s book-to-bill ratio was above 1.1. Book-to-bill compares new orders with shipments or billings; a reading above 1 means orders are coming in faster than they are going out. CNBC said backlog grew 9%, supporting an organic growth outlook of 4% to 6% for the second half of the year.

Organic growth means growth from existing operations, excluding items such as currency moves and acquisitions or divestitures. That metric can give investors a cleaner read on demand for the company’s core products.

What management said about the segments

Building Automation sales rose 9.6% year over year, or 9% organically, to $2 billion, according to CNBC. Chief Financial Officer Michael Stepniak said on the earnings call that the unit was supported by strong orders and growth in areas including health care, hospitality and data centers.

Process Automation sales increased 4% to $1.68 billion, but fell 1% organically, CNBC reported. Stepniak said the company expects growth in process automation technology to accelerate in the second half, helped by backlog conversion and higher catalyst shipments.

Industrial Automation sales declined 4.8% to $1.5 billion, but rose 4% organically, according to CNBC. Stepniak said second-half growth should continue, helped by demand for industrial measurement and sensing.

Guidance and the new target

CNBC’s Investing Club said it kept its buy-equivalent 1 rating on Honeywell Technologies and raised its price target to $275. The Club said the stronger outlook and longer-term targets supported the higher target. Jim Cramer’s Charitable Trust is long HON and HONA, according to CNBC.

Honeywell lowered dollar-based sales guidance to reflect a faster divestiture timeline for Productivity Solutions & Services and Warehouse & Workflow Solutions, CNBC reported. At the same time, the company raised guidance for operational measures including organic growth, segment margin and earnings per share.

For the third quarter, management projected sales of $4.9 billion to $5 billion, adjusted EPS of $2.05 to $2.20, organic growth of 4% to 6% and segment margin of 20% to 20.7%, according to CNBC. For the fourth quarter, the company guided for sales of $5 billion to $5.1 billion, adjusted EPS of $2.28 to $2.43, organic growth of 4% to 6% and segment margin of 22% to 22.7%.

CEO Vimal Kapur said the company’s projections assume no easing in current Iran war tensions and no major escalation or further supply chain disruption, according to CNBC. Honeywell Aerospace is scheduled to report earnings on Aug. 5, which CNBC said will give investors a fuller update on the separated aerospace business.

This story draws on original reporting from CNBC.