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The industrial conglomerate Honeywell International Inc. HON is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 20.3X compared with the Zacks Diversified Operations industry’s 16.67X. With a Value Score of D, HON stock may not present a compelling value proposition at these levels.
The current valuation is above its five-year median of 19.84X. In comparison with HON’s valuation, its peers 3M Company MMM, RTX Corporation RTX and Griffon Corporation GFF are trading at 18.72X, 21.22X and 11.51X, respectively. The company’s premium valuation compared with the broader industry raises concerns.
Valuation Remains an Overhang for Honeywell
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HON Stock’s Price Performance
Year to date, Honeywell stock has lost 5.2% against the industry’s 1.8% growth. In comparison, the S&P 500 has declined 3.3% in the same period. The company has also underperformed its key rivals like RTX and Griffon. Over the same time frame, RTX and Griffon have returned 15.3% and 1%, respectively.
HON’s YTD Price Performance
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Ongoing Challenges Faced by Honeywell
Honeywell has been witnessing persistent weakness in the Industrial Automation segment. Softness in the warehouse and workflow solutions businesses, due to lower demand for projects, has been affecting the segment's performance. Also, the weakened demand for its products and solutions within the sensing and safety technologies business is worrisome.
Continued softness in the warehouse automation business, owing to lower investments in the market, remains concerning for the segment. In fourth-quarter 2024, Honeywell’s Industrial Automation segment’s sales declined 1% on a year-over-year basis. For 2025, it anticipates the Industrial Automation segment’s organic sales to decline in the low-single digits.
High long-term debt remains a major concern for Honeywell. Its long-term debt in the last five years (2020-2024) increased 9.3% (CAGR). Exiting 2024, HON’s long-term debt was $25.5 billion, higher than $16.6 billion at 2023-end. The increase in its 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, interest expenses and other financial charges in fourth-quarter 2024 remained high at $291 million, reflecting an increase of 44.1% year over year. Exiting 2024, its long-term debt and current maturities totaled $26.83 billion. High debt levels can increase its financial obligations and prove detrimental to profitability moving ahead.
HON has been dealing with the adverse impacts of the high cost of sales and operating expenses. In 2024, its cost of sales rose 3.7% year over year to $23.8 billion, while selling, general and administrative expenses increased 6.6% to $5.5 billion. The company incurred high costs and expenses related to investment in digital infrastructure and business integration activities.
Honeywell also operates in the highly competitive aerospace, industrial and building automation markets, comprising well-recognised providers of highly engineered products. One of its peers, 3M Company, operates as a diversified technology firm and serves the aerospace, transportation, electronics, safety and industrial end markets. Strength in 3M Company’s Safety & Industrial and Transportation & Electronics units, along with accretive acquisitions, has been driving its performance.