Industrial goods manufacturer Honeywell International Inc. HON is scheduled to report its third-quarter 2015 results before the opening bell on Oct 16. In the last reported quarter, quarterly earnings slivered past the Zacks Consensus Estimate by a penny. Let’s see how things are shaping up for this announcement.
Key Factors in the Third Quarter
Despite modest GDP growth in most regions across the globe in 2015, Honeywell remains focused to deliver high organic growth, strong margin expansion, and double-digit earnings growth in the current year with a flexible yet disciplined focus on cost and productivity. At the same time, the company aims to capitalize on opportunistic acquisitions to expand its geographical footprint.
During third-quarter 2015, Honeywell acquired privately-held global aviation software company Aviaso for an undisclosed amount. The acquisition will likely give a competitive edge to the beleaguered Aerospace portfolio that faces headwinds from protracted budget allocations for defense and aerospace funds by the U.S. government.
With Aviaso on board, Honeywell will be able to strengthen its comprehensive service offerings by adding the fuel management services to its portfolio. The acquisition further augments Honeywell’s European presence and better positions it to capitalize on the markets where Aviaso operates, which include a software development facility in Sofia, Bulgaria.
In addition, Honeywell continues to launch products and technologies in order to drive organic growth and expand its business. The company’s diligent focus on working capital management, free cash flow generation and a conservative balance sheet remain key positive attributes.
The company’s balanced mix of long- and short-cycle businesses has the potential to earn consistent above-average returns and mitigate operating risks. The outlook for the U.S. economy continues to improve and the company is expecting a positive trend in its U.S. businesses and at the same time remains focused on increasing its presence in high-growth regions. Steady growth in the housing market, urbanization and infrastructure development continue to create attractive opportunities across its entire portfolio.
Moving forward, Honeywell expects savings from previously funded restructuring actions. The company expects to improve its overall cost position and drive further margin expansion with improved cost management initiatives.
Earnings Whispers
Although the company’s proactive restructuring initiatives have positioned it to navigate better than many of its peers, it is yet to witness signs of stabilization in a number of its major end markets. Furthermore, our proven model does not conclusively show that Honeywell is likely to beat earnings this quarter as it lacks the key ingredients for a success recipe.
Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates a likely in-line earnings for the shares.
Zacks Rank: Honeywell’s Zacks Rank #3 (Hold) when combined with 0.00% ESP reduces the predictive power of ESP. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Allegiant Travel Company ALGT, earnings ESP of +3.50% and Zacks Rank #1.
The Chubb Corporation CB, earnings ESP of +13.51% and Zacks Rank #1.
Hawaiian Holdings Inc. HA, earnings ESP of +8.70% and Zacks Rank #1.
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