How Does The Sluggish Market Affect This Diversified Conglomerate

Shaunak is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Honeywell International (NYSE: HON), the New Jersey-based "diversified" inventive solution provider, is what I'd describe as a finger-in-every-pie conglomerate. They provide their service in Aerospace, Automation and Control Solutions, High Performance Materials, and Technology and Transportation Systems, and they compete with countless heavyweights in all those industries. A modest forecast for 2013 might have disappointed a few investors, but it is nothing to worry about. Honeywell might not be performing as well as they should, but having said that Honeywell is on the right track with its decisions and forecasts--here's why

Honeywell recently bought Intermec (NYSE: IN) for $603 million, which I think is surprisingly undervalued, and the sale has indeed attracted some attention from law firms who are trying to make sure investors are get the best value for their shares at Intermec.

Keeping aside the courtroom drama and by just looking at facts it can be said that Honeywell has got themselves a very good deal, although it will cut down their profits by about 3 to 4 cents a share.  I believe that despite the 4 cent cut in their profits Honeywell remains an attractive stock in an investor's portfolio. The move is set to benefit Intermec as well, as their stock price inches towards $10 a share, all set to have a break-through. Intermec will now be better equipped with resources and outreach thanks to the acquisition, and will benefit greatly from Honeywell's existing global presence. 

Intermec's scanning and mobile computer technology will help Honeywell offer products involving RFID (radio frequency identification), voice-directed applications, etc. This will allow Honeywell to be a leader of "rugged" mobile computers and scanners in the automatic identification and data capture market, where it competes with the likes of GE, Siemens, and Motorola Solutions amongst others.

Honeywell is expected to post earnings to the tune of around $4.50-$4.60 per share in the current fiscal year and I reckon they'll be a good buy especially after their acquisition of Intermec. Simply put, although the earnings will suffer a bit in the next year, they are poised for good performance in the near future. Honeywell will probably be able to give out something around $4.85 per share to its shareholders in 2013, which might seem to be a bit of a slow progress. Having said that, I think that the continuing economic slowdown will affect not just Honeywell but also most of its competitors in the field.  In such a scenario, the "robustness" of Honeywell along with the merger with Intermec will help them prevail profitably, despite the drop in the rate of EPS growth.

How does the competition fare?

Lets take General Electric (NYSE: GE) for example. They've got a very robust strategy in place to increase revenues really well even in the slowest of economies. GE gets a lot of its revenues from a growing pool of demand in developing countries, and this is reflecting in their stock price. GE has increased its outreach in the Americas by over 100%, and in emerging markets like China and India by about 900%, in the past 10 years. Also, over the next five years GE expects to pursue $90 billion in Chinese opportunities, with another $30 billion in Australia and New Zealand and $50 billion in Latin America. Stock prices have already grown from around $16 to over $21 a share and by the looks of it, it might just hit at least the $32-$33 mark in the next 12-18 months. GE remains a solid buy in my book with good returns in the next few years.

This is the kind of strategy that diversified conglomerates like Honeywell should aim for to really make use of the opportunity from the market not favoring them. This would help Honeywell turn around their falling growth in EPS and make it much more attractive to investors.

The key is to choose your stock carefully in this industry at this time and note that even if a company is stating that it is not going to do well in the next fiscal quarter or so, it doesn’t necessarily imply that the company can't pull off good results in a slow race. 

 


Shaunak88 has no positions in the stocks mentioned above. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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