EUR 850.00 For Business Accounts Only

Morningstar | Honeywell 3Q 2018 Updates

Honeywell is one of the best-positioned, diversified industrials in our coverage for growth based on a confluence of three factors –culture, process, and portfolio. While culture is hard to define, we submit it’s essential to Honeywell’s continued success. Common characteristics in its workforce include an ability to demonstrate independent and curious intellectual thought, as well as results-driven entrepreneurialism. A rigorous process is clear at all levels of the organization. Honeywell’s operating system is modeled after the Toyota production system and employs a cross-functional framework emphasizing lean operations, customer-focused solutions, and speed of product development down to the plant level. For all the length of time since its implementation, we still see an opportunity for further operating margin uplift and model a 4-point improvement over the next five years. Importantly, not one of Honeywell’s facilities run at its self-imposed highest level of manufacturing.As for its portfolio, we think Honeywell is successfully transitioning toward becoming a software-industrial company. We are bullish on some of its recent acquisitions, including Intelligrated, which we believe will help propel the firm’s productivity solutions business toward at a 10% CAGR over the next five years. Encouragingly, only about 5% of U.S. warehouses are automated. Warehouse automation is exposed to strong secular trends, including growth in e-commerce package volumes and omnichannel fulfillment needs. Automation providers like Intelligrated improve manufacturing facilities’ storage and throughput plans. Examples include coordinating equipment to optimize functions like shipping and handling, Automation benefits e-commerce customers by reducing manufacturing costs and increasing workplace safety. In Europe, where grocery customers commonly order online and pick up at a kiosk, automation solutions can support bespoke requests, like order preparation or substitution.Finally, we see improving fundamentals in aerospace driven by global air travel, U.S. defense spending, as well as above-market-growth connectivity offerings that are less driven by traditional flight hours.