The Ratings Game: Honeywell stock leads the Dow’s losers after BofA analyst backs away from bullish stance

Shares of Honeywell International Inc. took a hit Wednesday, after BofA Securities analyst Andrew Obin said he no longer recommended investors buy, citing expectations that inflation and supply-chain headwinds will continue into next year.

Obin downgraded the diversified industrial company to neutral from buy. He also cut his stock price target to $245 from $270.

Honeywell’s stock

fell 1.6% in midday trading. It had bounced 2.7% over the previous four sessions, since closing on Dec. 1 at a 10-month low of $199.42.

The stock’s price decline of $3.29 shaved about 22 points off the Dow Jones Industrial Average’s

price, while the Dow declined 84 points, or 0.2%.

BofA’s Obin said “there is a lot to like” about Honeywell, as recent investments have shifted the company business toward higher growth and margins, but he believes the company is likely to face revenue and margin pressures into the first half of 2022.

Honeywell Chief Financial Officer Gregory Lewis said at the company’s “Leadership Webcast Series” last month that fourth-quarter revenue was trending to the low-to-middle end of expectations given the “severity of the constraints” in the economy from parts shortages and logistics and labor challenges, according to a FactSet transcript.

And while the company was doing what it could to alleviate the challenges, including raising prices and compensation, Lewis said it was “going to be a real fight.”

“It’s going to be with us for a while,” Lewis said. “It’s really hard to say whether we’re seeing the peak right now, but I would say to just kind of reiterate, I think we’re going to see some of these challenges going into the first half of next year.”

He highlighted, however, that “demand is not the issue,” it’s meeting that demand.

BofA’s Obin said given the near-term headwinds, he believes the scope for upward earnings revisions and valuation multiple expansion is limited.

“We believe [Honeywell] is a high-performing multi-industrial, with the sum worth more than the parts,” Obin wrote in a research note to clients. “However, our sum-of-the-parts analysis does not support further multiple expansion in the near term.”

The stock has slumped 9.2% over the past three months, while the SPDR Industrial Select Sector exchange-traded fund

has tacked on 2.1% and the Dow has gained 1.7%.

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