Global diversified technology and manufacturing company Honeywell International Inc.’s (HON), shares dropped almost 1% yesterday on close, following the initiation of public offering of senior unsecured notes valued at approximately $1 billion.
The notes offered by Honeywell include a combination of floating and fixed rate notes. The fixed notes worth $300 million have a coupon of 3.35% and are due 2023, while the two-year floating rate senior notes worth $700 million are due on 2015.
The company intends to use the proceeds for general corporate purpose. Apart from this, rating agency Fitch, expects the company to use the funds to meet its liquidity requirement, ahead of the scheduled maturity of $600 million 3.875% notes due Feb 2014.
Fitch anticipates assigning an 'A' rating, with a stable outlook to Honeywell’s senior unsecured and unsubordinated debt. The rating agency has cited the company’s strong operating performance, leading market position, diverse business portfolio, high liquidity and consistent cash flow as some of the reasons for this outlook.
During the nine months ended Sep 30, 2013, Honeywell generated net cash of $2.7 billion from its operating activities, up 23% compared with the year-ago period. Moreover, the company had solid $5.5 billion cash on its balance sheet as on Sep 30, 2013.
However, Fitch may give Honeywell a negative rating if the company’s margins shrink, or liquidity position deteriorates, or if its contingent liabilities increase. Moreover, a further rise in the company’s leverage position due to large acquisitions or other discretionary spending, might also prompt Fitch to revise the current rating and outlook.
Honeywell currently has a Zacks Rank #3 (Buy). Other stocks that look promising and are worth a look include, Hutchison Whampoa Ltd (HUWHY), Tyco International Ltd (TYC) and ITT Corporation (ITT). All these stocks carry a Zacks Rank #2 (Buy).
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