Option Trade 
Honeywell International Inc. (NYSE:HON) Calls 
Thursday, 21st April, 2016

**OPTION TRADE: Buy the HON Sep 2016 115.000 call at approximately $5.00. Place a pre-determined sell at $10.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.00.

by Ian Harvey

April 21, 2016

Honeywell International Inc. (NYSE: HON), a diversified technology and manufacturing company, is expected to announce first quarter financial results before market open tomorrow, 22nd April, 2016. The company added about 17.9 percent in value since last earnings when it was at $97.97.

Wall Street is expecting earnings per share of $1.50. The analysts’ current consensus range is $1.48-$1.52 for EPS. The market consensus range for revenue is $9.28B-$9.47B, with an average of $9.36B.

Overall, the average earnings surprise was 1.48 percent over the past four quarters. Back on January 29, 2016, it posted earnings per share at $1.58 which missed the consensus $1.58 projection (negative surprise of 0%). Revenue came in at 9.98B versus consensus estimate of 9.98B. The stock gained 5.34 percent the day following the earnings was released, and on 7th day price change was 4.67 percent.

Honeywell has very promising growth going forward with their focus on including great embedded software in their industrial products. The company realizes that their growth from many of its segments like aerospace and ACS will come from innovations in the software development side, so they have really capitalized on it by hiring a large number of software engineers.

Honeywell International has a one year low of $87.00 and a one year high of $116.56. The company has a market cap of $88.19 billion and a price-to-earnings ratio of 18.98. The firm has a 50-day moving average of $110.40 and a 200 day moving average of $103.80.

Honeywell has been on a great run since the great recession, as it has managed to return +385%. Honeywell has been actively acquiring companies to improve its various different business segments. Honeywell is a much diversified business which specializes in many different areas such as aerospace, automobiles, chemicals, and industrial controllers.

Honeywell has a terrific strategy that drives the synergies of their acquisitions by improving operational efficiency through improving margins and cutting costs.

Honeywell is constantly investing in improving its efficiency, and cutting its costs in order to achieve this. Last year, $160 million was spent on restructuring that was estimated to increase operating margin by just 2.2%. Honeywell knows that this investment in improving efficiency will benefit them in the long term, and this is the strategy that has helped Honeywell outperform the market for so long.

Honeywell has a great bottom line because of its relentless improvement strategy, and this strength will be what will give Honeywell fantastic earnings going forward, even if sales aren't soaring. Honeywell's guidance sees a 10% improvement to its bottom line through investment in improving operational efficiency.

Honeywell currently has 14% of its sales from its energy division which relies on oil and gas prices. With the current rally in oil prices, it can be expected that Honeywell's energy division will get a much needed boost, which will bump up its earnings in the medium term. Most of Honeywell's energy revenue comes from downstream operations, which is less sensitive to oil prices. Cote predicts Honeywell will earn $200 million in revenue growth in 2017, as oil and gas prices rebound to historical norms this year.

Honeywell International Inc.‘s stock had its “buy” rating reaffirmed by equities research analysts at Deutsche Bank in a report released last Sunday. They currently have a $120.00 price objective on the stock. Deutsche Bank’s target price points to a potential upside of 4.68% from the stock’s current price.

Also, several other equities research analysts have recently commented on the company.

• Barclays increased their price objective on Honeywell International from $104.00 to $107.00 and gave the stock an “overweight” rating in a report on Tuesday, January 19th.

• Argus restated a “buy” rating on shares of Honeywell International in a research note on Monday, January 4th. Stifel Nicolaus restated a “buy” rating and issued a $113.00 target price (up from $106.00) on shares of Honeywell International in a research note on Monday, February 1st.

• Sterne Agee CRT restated a “buy” rating and issued a $113.00 target price on shares of Honeywell International in a research note on Friday, February 26th.

• Finally, Zacks Investment Research upgraded Honeywell International from a “hold” rating to a “buy” rating and set a $125.00 target price on the stock in a research note on Wednesday, March 30th.

Five research analysts have rated the stock with a hold rating and fifteen have given a buy rating to the company. The company has an average rating of “Buy” and an average price target of $120.00.

Harvey’s Options Volatility Indicator

Conclusion

Honeywell's stock has major upside going into the latter part of 2016 due to many tailwinds such as rebounding oil and gas prices, solid long term growth prospects in the aerospace segment, and Honeywell's proven ability to drive efficiencies across all of its segments.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the HON Sep 2016 115.000 call at approximately $5.00. Place a pre-determined sell at $10.00.

Note: No protective stop losses added -- but if you wish to do so make it $2.00.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.



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