Honeywell International, Celanese and Boeing Co Want to Increase Cash Flow

Free cash flow generation is the key to generating long-term value for shareholders, and there are three companies I'd like to look at that are planning on generating strong cash flow in 2017. First, Honeywell International Inc. (NYSE:HON) is set to significantly increase FCF in the coming years as it comes out of a period of high investment. Meanwhile, specialty materials and chemical product company Celanese Corporation (NYSE:CE) looks set to continue its remarkable transformation into a highly cash-generative operation. And finally, Boeing Co.'s (NYSE:BA) stock might sink or swim based on whether it meets its FCF guidance.

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Is Honeywell International a Stock to Buy For 2017?

Following Honeywell International Inc.'s (NYSE:HON) recent 2017 outlook meeting, it's a good time to reassess whether the stock is a good value investment. Let's factor in management's guidance to answer this question.

The investment thesis behind Honeywell International Inc.

This may seem esoteric, but bear with me: The best argument for buying the stock rests with its underlying free cash flow generation. With good FCF, a company can do many things, such as increase dividends, buy back shares (which enhances earnings), engage in value-adding acquisitions, or even simply pay off debt.

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Honeywell International is a Stock to Buy

Honeywell International Inc. hasn't had a recent history of disappointing investors, so the recent guidance cuts must have come as something of a surprise. Whenever a company reduces estimates, there's a reduction in confidence and holders looking to exit the stock, but I happen to think it's created a buying opportunity in the stock, and here's why.

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Honeywell International Stock: Time to Sell?

Following an underwhelming set of second-quarter results that saw the company lower its full year revenue guidance, investors in Honeywell International (NYSE:HON) will be wondering if now is the time to dump the stock. Let's take a look at the trends in the company's earnings and guidance and what they say about the stock's prospects.

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Honeywell International vs. United Technologies

United Technologies  and Honeywell International  are having a pretty good year so far. Both stocks have outperformed the S&P 500 as initial fears for an industrial recession have abated throughout the year. United Technologies is the cheaper stock, but both look like a good value based on their forward estimates.
Let's take a look at their presentations at the recent Electrical Products Group (EPG) conference, and what management said about their earnings prospects in 2016.

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Honeywell International Stock Analysis

In common with its peer and sometime acquisition target, United Technologies (NYSE:UTX), Honeywell International (NYSE:HON) has had a good 2016 so far. But can the good times continue? Let's take a look at the updated investment thesis for buying the stock in the light of Honeywell's recently released first-quarter results.

UTX data by YCharts.

The case for buying Honeywell International stock With a trailing P/E ratio of nearly 19, Honeywell isn't an obviously cheap stock, but upon closer inspection, it has plenty of upside potential. In fact, if it merely hits its long-term targets, the case for buying the stock is a strong one. The best argument in its favor rests on its underlying free cash flow generation.

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Honeywell International Earnings Review

Earnings season has kicked off, and industrial bellwether Honeywell International (NYSE:HON) is set to join the party on Friday. Following its aborted bid for United Technologies (NYSE:UTX), investors will be eagerly following Honeywell's results to see if its ongoing plans are on track. Let's take a look at three key things to look out for in the results.
Honeywell reports out of three segments, the relative importance of which can be seen by looking at last year's segment profits. (ACS stands for Automation and Control Solutions, and PMT for Performance, Materials, and Technologies.)

DATA SOURCE: HONEYWELL INTERNATIONAL PRESENTATIONS.

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3 Industrial Internet of Things Stocks

In a world getting used to global growth rates at far lower levels than in previous decades, large industrial companies can't simply rely on revenue growth in order to increase earnings significantly. Something more is needed. One of those "somethings" is the Industrial Internet of Things (IIoT), and there are three early adopters set to win out. Let's take a closer look at them.

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Honeywell International Investor Conference

Following its aborted bid for United Technologies Honeywell International's 2016 investor conference gave management an opportunity to redefine its strategic future to the analyst community. In the end, management outlined a mix of near- and long-term catalysts that should help investors decide what to do with the stock. Let's take a closer look at them.

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United Technologies vs Honeywell International

United Technologies (NYSE:UTX) or Honeywell International (NYSE:HON)? Both companies have heavy exposure to aerospace and global construction markets and therefore face similar headline risks. In addition, both are going through transition periods in 2016. The changes will compromise revenue and earnings in 2016 but are designed to ensure long-term earnings and cash flow generation. So which stock will win out this year?

HON data by YCharts.

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Aerospace Stocks With Upside Potential

Given an avoidance of a major slowdown in the global economy, the aviation industry looks set for another good year. The commercial jet order book stands at nine years' worth of last year's delivery rates, and aluminium supplier Alcoa just forecast 8% to 9% global sales growth for the industry. Meanwhile, a leading industry body, the International Air Transport Association (IATA), recently predicted 10% net profit growth for the worldwide airline industry in 2016. However, many leading aerospace companies are giving modest outlooks for 2016. Why is this so, and could there be hidden upside in the sector?

GENERAL ELECTRIC COMPANY'S LEAP ENGINE WILL GENERATE STRONG LONG-TERM REVENUE. IMAGE SOURCE: CFM INTERNATIONAL.

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Time to Buy Honeywell International (HON) ?

If you like Honeywell International's (NYSE: HON) prospects of hitting its guidance in 2016, then don't miss the chance to buy the stock, because it's a lot cheaper than many people might think. The aerospace, controls, and materials company represents a good value in the industrial sector. Here's why.
Honeywell's underlying cash flow
In a nutshell, Honeywell International's underlying free cash flow, or FCF, generation is a lot stronger than it looks. Why is this important? Simply put, because FCF (operating cash flow minus capital expenditures) is money a company can use to pay dividends, make buybacks, or secure earnings-enhancing acquisitions.
In Honeywell's case, the company is in the middle of a five-year plan (2014 to 2018) intended to generate 4% to 6% sales growth per annum, with margin expansion helping generate double-digit earnings growth along the way. However, growth plans usually require investment, and Honeywell's capital expenditures are eating into its cash flow.
One way to look at it is to consider capital expenditures compared to depreciation. Normally, you'd want a company to have higher capital expenditures than depreciation, because it's usually a good idea for companies to grow, but as you can see, in recent years, Honeywell has significantly increased capital expenditures in order to fuel future growth.

HON Total Depreciation and Amortization (TTM) data by YCharts.

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Time to Buy Honeywell International?

The industrial sector enters 2016 in a funk, and the outlook for the rest of the year is uncertain at best. In such an environment, many investors searching for so-called "safe haven" stocks. Alongside companies like General Electric Company (NYSE: GE) and Danaher Corp (NYSE: DHR), Honeywell International (NYSE: HON) is frequently mentioned by the analyst community as a potential candidate. So, without further ado, let's take a look at Honeywell International's prospects in 2016.


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Honeywell International (HON) Stock is Cheaper Than You Think

Honeywell International (NYSE:HON) has a reputation for being one of the best run companies in the industrial sector, and quality rarely comes cheap. However, a deeper look at its guidance reveals a key metric that makes Honeywell look like one of the most attractive companies in its sector. Let's take a closer look.


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Honeywell International (HON) Return on Assets Analysis

Have you ever looked at an industrial conglomerate like Honeywell International (NYSE:HON) and settled on looking at segmental margin as the key indicator of each of its segments' prospects going forward? Or even decided that the company's investment and acquisition activity should be centered on the segment with the highest margin? If so, then you could be looking at things the wrong way. Arguably, the most important number to look at is segmental return on assets, or ROA. Let's take a look at why, and what the ROA numbers mean for Honeywell International.


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United Technologies or Honeywell: Which is the Better Stock to Buy?

When long-term investors compare the investment case for industrial conglomerates such as United Technologies Corporation (NYSE: UTX  ) and Honeywell International Inc. (NYSE: HON  ) , they often focus on a metric called return on equity, or ROE. In a nutshell, ROE measures the net income a company produces from shareholder equity.

Today I'm going to break down why ROE is such an important measure for valuation purposes and how it determines a company's ability to grow its dividend. Moreover, I'll carry out a DuPont analysis, a method of garnering more detail on why one company is outperforming another, so that readers can best decide what to do with their money.

Why return on equity matters
One of the simplest and most commonly used valuation methods for stocks is the Dividend Discount Method, also known as the Gordon Growth Model. Simply put, it's a way of valuing a stock based on the potential for future dividend growth. Don't be alarmed by the equations; it's simple stuff.


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How to Invest in the Industrial Equipment Sector

If you have wondered how to play the anticipated resurgence in manufacturing in the U.S., the industrial equipment industry could be the place to look for stocks to buy. The logic behind this view is simple: If the economy is flourishing, manufacturing companies will look to expand capacity and spending on capital machinery will increase. At this stage general industrial equipment companies such as Siemens, ABB (NYSE: ABB  ) , Parker-Hannifin (NYSE: PH  ) , Honeywell International (NYSE: HON  ) , and Emerson Electric (NYSE: EMR  )  start to look attractive. Investors should also consider more niche market players such as vision machine company Cognex (NASDAQ: CGNX  ) or Roper Industries (NYSE: ROP  ) . It's time to look closer at the industry.

Source: Motley Fool Flickr Account.

What is the industrial equipment industry?

In essence, the industry represents any item of capital machinery that is sold to an industrial company in order to enable its manufacturing or processing activity. While this traditionally means hardware, investors should recognize that software and information technology are becoming an increasing part of the industry.


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Honeywell International Equity Research

Earnings season is in full flow and the industrial heavyweights are all giving reports. General Electric Company, Danaher  and Honeywell International  have all recently released their earnings. For want of a better description, these companies are usually lumped together and called industrial conglomerates, but Foolish investors will want to know what makes one more attractive than the other. In other words, why buy a stock like Honeywell International, rather than General Electric or Danaher?

Honeywell International raises guidance, sort of
With a diversified industrial with a market cap of $73 billion, it's going to take a pretty seismic change of fortunes within any one industry in order to significantly adjust earnings guidance. This was certainly the case with Honeywell's latest results. Despite, full-year sales guidance being increased by $100 million to $3.9 billion for its transportation unit, the only change to EPS guidance was to see the bottom end raised by $0.05, resulting in a revised full-year guidance of $5.40-$5.55.

 

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