The stock of Honeywell International (NYSE:HON, 30-year Financials) gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $218.53 per share and the market cap of $152 billion, Honeywell International stock shows every sign of being significantly overvalued. GF Value for Honeywell International is shown in the chart below.
Because Honeywell International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Honeywell International has a cash-to-debt ratio of 0.66, which is in the middle range of the companies in Industrial Products industry. The overall financial strength of Honeywell International is 5 out of 10, which indicates that the financial strength of Honeywell International is fair. This is the debt and cash of Honeywell International over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Honeywell International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $32.6 billion and earnings of $6.72 a share. Its operating margin is 17.45%, which ranks better than 89% of the companies in Industrial Products industry. Overall, the profitability of Honeywell International is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Honeywell International over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Honeywell International is -4.4%, which ranks worse than 77% of the companies in Industrial Products industry. The 3-year average EBITDA growth is -1.5%, which ranks in the middle range of the companies in Industrial Products industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Honeywell International's return on invested capital is 10.94, and its cost of capital is 7.85. The historical ROIC vs WACC comparison of Honeywell International is shown below:
Overall, The stock of Honeywell International (NYSE:HON, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about Honeywell International stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
