Given the uncertainty created by the ongoing tariff conflict, investors have braced themselves for a slew of downgrades to full-year guidance from industrial companies. That makes the recent first-quarter results and guidance from Honeywell International (NASDAQ: HON) a bit more impressive, and the stock looks like a good value for patient investors.
Here are three reasons why.
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1. Honeywell’s guidance
The company has an impressive history of beating and raising guidance, so investors get concerned when it fails to do so. Still, with all the economic uncertainty around tariffs and whether they are a temporary tactical measure for negotiation or a strategic act to reshape supply chains and shift industrial activity, it would be understandable if Honeywell had bad news for investors.
For example, its aerospace peer RTX shocked the market with its update on a potential tariff hit. Some companies have elected not to give guidance, and others, like 3M, have pointed out the potential hit to earnings from tariffs in 2025.
However, Honeywell raised its guidance’s midpoint by lowering its range’s low end. On its fourth-quarter earnings call, management forecast a full-year 2025 earnings per share (EPS) range of $10.10 to $10.50. However, management upgraded its guidance to a new range of $10.20 to $10.50. For reference, the updated guidance incorporates management’s estimate for the impact of current tariffs.
That’s not to say Honeywell isn’t feeling the pinch from tariff-related uncertainty in the economy. Indeed, management lowered its full-year sales expectations in one of its most cyclical businesses, industrial automation, to a mid-single-digit decline from a prior estimate for a low-single-digit decline.
Still, Honeywell’s overall first-quarter organic sales growth of 4% was ahead of internal expectations (notably in commercial aerospace aftermarket), and management nudged its full-year sales guidance in building automation higher.
All told, Honeywell’s excellent first quarter and conservative-looking guidance create a lot of potential for the company to exceed management’s guidance in 2025.
2. Relatively well-placed to deal with tariffs
As noted, Honeywell’s guidance incorporates a $500 million hit from increased tariffs. Still, management is finding ways to offset this through pricing actions and seeking alternative sourcing for tariff-impacted products/materials.
That task is more straightforward because Honeywell tends to produce and sell locally. A chart in its first-quarter earnings presentation outlines that more than 80% of its sales in the U.S. and Europe are made locally, and 50%-80% of its China and rest-of-the-world sales are produced locally.
That’s not to say tariffs don’t impact Honeywell. However, as a net exporter to China, the key trading relationship for Honeywell’s tariff impact is U.S./China. Given the massive tariffs already imposed on each other, and the fact that Honeywell has incorporated these tariffs into its guidance, it’s fair to say there’s upside potential for Honeywell’s earnings, given any easing of U.S./China trading relations.
3. An ongoing catalyst for change
The final reason for optimism over Honeywell comes down to its breakup plans. Management is planning to spin off its advanced materials business as Solstice Advanced Materials in late 2025/early 2026, and the good news is that management expects its growth to improve in the back half of 2025, setting the company up nicely for the spin.
Similarly, Honeywell Aerospace continues to grow at a high-single-digit rate, with ongoing demand in the commercial aftermarket and original equipment sales growing as airplane manufacturers seek to ramp production and deliver on multiyear backlogs. Meanwhile, growth in building automation is offsetting tariff-related weakness in industrial automation.
In short, all three future companies — Solstice Advanced Materials, Honeywell Aerospace, and Honeywell Automation — should start life as stand-alone companies in growth mode. That will help ensure successful spinoffs. It’s a major plus because the long-term potential to improve growth is significant, particularly in aerospace as airplane production ramps up and automation as industrial companies look to invest in automation to facilitate shifting manufacturing away from low-labor-cost countries.
Image source: Getty Images.
A stock to buy
For near-term and long-term-focused investors, Honeywell’s stock is attractive. There’s real potential for Honeywell to beat its guidance in 2025 for near-term investors.
Meanwhile, suppose you believe that breakups allow management to generate operational improvements in the separated businesses by devoting more time, effort, and capital to them in line with their needs. In that case, Honeywell is also an outstanding stock for long-term investors.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends 3M. The Motley Fool recommends RTX. The Motley Fool has a disclosure policy.
