Option Trade
Honeywell International Inc. (NYSE:HON) Calls 
Tuesday, July 14, 2015

**OPTION TRADE: Buy the HON Sep 2015 105.000 call (HON150918C00105000) at or under $2.20. Place a protective stop loss at $0.85, and a pre-determined sell at $4.40.

by Ian Harvey

July 14, 2015

Introduction

Honeywell International Inc. (NYSE: HON), a diversified technology and manufacturing company, will report earnings on Friday, before markets open, and analysts on the Street are expecting Honeywell to post an earnings per share number of $1.5 for the quarter that ends on 2015-06-30. The figure is the consensus from all of the firms that have issued estimates on the company.

Honeywell International recently set a new all-time of $107.10 in May, capping off a stable rise of 23% over the past two years. The business has been growing like clockwork in recent years as the general US economy is recovering. Industrials like Honeywell usually benefit in a rising cycle as individuals and companies have more money to spend and invest.

The company, known for technology and developing equipment and machinery in industries as far ranging as aerospace and healthcare, is into its next 5-year plan to 2018 to streamline operations and expand business in high growth regions around the world.

Not only does Honeywell make the equipment, the company aspires to be the "Apple of the industrial sector" through design studios that work on improving the experience of customers and technicians who use and maintain the equipment. Of the 22,000 or so engineers Honeywell employs, about half of them are working on software development. This is because the software systems that drive the machinery now have to be robust and comprehensive in use.

Technical Details

Shares of Honeywell International closed Monday session at 103.77, up 1.33%. Honeywell International has a 52 week low of $82.89 and a 52 week high of $107.10.

The stock’s 50-day moving average is $103.83 and its 200-day moving average is $102.73.

The company has a market cap of $80.05 billion and a P/E ratio of 18.76.

The stock price of Honeywell International Inc’s has gained 10.8% over the last 200 days, and is in strong up trend. In the last 50 and 100 days, Honeywell International Inc is up 1.15% and down 1.04%, respectively.

Earnings

Previous Earnings

Honeywell International last posted its quarterly earnings results on Friday, April 17th. The company reported $1.41 earnings per share for the quarter, beating the analysts’ consensus estimate of $1.39 by $0.02. The company had revenue of $9.68 billion for the quarter, compared to the consensus estimate of $9.54 million.

During the same quarter last year, the company posted $1.28 earnings per share. Honeywell International’s revenue was down 4.8% compared to the same quarter last year. Analysts expect that Honeywell International will post $6.09 EPS for the current fiscal year.

Future Earnings

Research analysts have a consensus long-term growth estimate of $10.01 on the company. This estimate considers both sales and earnings over the next three to five years. The three months ago estimate was at $10.01.

Why Honeywell?

Honeywell Federal Manufacturing and Technologies LLC, a part of diversified conglomerate Honeywell International Inc., was chosen as the management and operating contractor by the National Nuclear Security Administration (NNSA) for its National Security Campus (“NSC”) in Kansas City, Missouri.

The contract is projected to be worth $900 million a year, or roughly $9 billion over the next ten years, inclusive of options.

Other positive points are:-

• Honeywell International is a solid, well-performing company.

• Earnings growth has been good and margins have been improving thanks to the company innovating its operations.

• The company has a strong financial footing and a good track record of raising dividends regularly.

Financials

Since 2011, earnings growth returned following the GFC, and over the past four years reported GAAP EPS has more than doubled, growing at an average annual 19.7%. The company's past long-term earnings track record has been for low double-digit growth. Revenues are steady and trending upward, but Honeywell's focus on improving its business has led to a rise in profit margins that are now at levels higher than they were before 2008.

The net income margin in fiscal 2014 was 10.5%, up from 5.6% only three years earlier. Return on equity, the ratio that basically measures the profitability versus the assets used to make the earnings, is consistently high in the low to mid-20s.

Revenues

Presently, the stock is about 5% down from the earlier high, but it may be an average pullback move. Because the company has a great amount of overseas business, its revenues are being negatively affected by FX impacts from the strong dollar. This could be a short-term situation, but the company is on operating well and on target for its five-year plan, so the stock story is good.

Hedge Fund Backing

The number of institutional investors holding Honeywell International Inc in their top 10 positions increased from 46 to 59 for an increase of 13.

Evercore Trust Company N.A. had the largest stake with ownership of 19.71 million shares as of q1 2015 for 7.22% of the US long stock exposure. Mar Vista Investment Partners Llc is another notably bullish investment manager who is having 1.21 million shares of Honeywell International Inc or 7.17% of their US long stock exposure. Further, Cincinnati Financial Corp have 5.97% of their US long stock exposure invested in the company for 947,500 shares. The Florida-based fund Suncoast Equity Management disclosed it had bought so far a stake worth about 5.8% of the investment manager’s stock portfolio in Honeywell International Inc. The Ohio-based fund Cincinnati Casualty Co is also positive about the stock, possessing 110,965 shares or 5.78% of their US long stock exposure.

Analysts Opinions

Honeywell International has received an “A” credit rating from Morningstar. The firm’s “A” rating suggests that the company is a low default risk. They also gave their stock a three star rating.

The company has also been the subject of a number of other research reports:-

• Analysts at Oppenheimer reiterated an “outperform” rating on shares of Honeywell International in a research note on Wednesday, May 20th.

• Analysts at Cowen and Company set a $116.00 price target on shares of Honeywell International and gave the company an “outperform” rating in a research note on Friday, May 15th.

• Analysts at Nomura initiated coverage on shares of Honeywell International in a research note on Tuesday, March 31st. They set a “neutral” rating and a $103.00 price target on the stock.

• Finally, analysts at Zacks reiterated a “hold” rating on shares of Honeywell International in a research note on Monday, March 30th. Three research analysts have rated the stock with a hold rating and ten have assigned a buy rating to the company. The stock currently has a consensus rating of “Buy” and an average target price of $112.00.

Shares of Honeywell International have been given a consensus rating of “Buy” by the thirteen analysts that are currently covering the company. Three analysts have rated the stock with a hold recommendation and ten have issued a buy recommendation on the company. The average twelve-month price target among analysts that have covered the stock in the last year is $112.20.

Conclusion

It is expected that a great story of organic growth and a boom in aerospace from CEO Dave Cote of Honeywell will be given.

Therefore, based on the facts above the following option trade is recommended…..


**OPTION TRADE: Buy the HON Sep 2015 105.000 call (HON150918C00105000) at or under $2.20. Place a protective stop loss at $0.85, and a pre-determined sell at $4.40.



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