Honeywell (HON) may have fallen hard from its low $60s stock price in Mid-May, but Citi simply sees the 25% drop as even more reason to buy the stock. The cheap price and HON’s energy exposure make the stock Citi’s Top Pick:
HON Sits At The Crossroads Of Several Key Energy Themes —
Energy efficiency, environmental compliance and energy infrastructure themes touch roughly 42% of
total sales. Coupling these themes with 35% exposure to Aero, which should grow at least 4% through ’10, supports our estimates.
Efficiency Has Clear Economic Drivers Given Energy Costs —
Regulation remains a key driver of efficiency upgrades, but we believe economics are now a more important and ultimately more sustainable driver. HON can address the energy efficiency of homes, buildings, industrial plants, vehicles and aircraft.
Earnings Discounted For Recession —
Group including HON is trading near 20-year trough EPS multiple. Market is discounting industrials earnings for recession and corresponding EPS revisions. If HON’s EPS don’t crack under macro
pressures in the next 12-18 months, multiple expansion should follow….
HON’s high earnings quality, margin upside and cash deployment
opportunities give us high confidence in our estimates.
Citi reiterates BUY on Honeywell (HON), it remains a Citi Top Pick, target price $70.