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Last update on 2024-06-14

Honeywell (HON) - Piotroski F-Score Analysis for Year 2023 (Final Score: 7/9)

Comprehensive Piotroski Score analysis of Honeywell (HON) for 2023, showcasing a strong score of 7/9 based on key financial criteria.

Knowledge hint:
The Piotroski F-Score is a number between 0 to 9 which reflects the strength of a company's financial position. It is based on 9 criteria involving profitability, liquidity, and leverage. This model helps investors identify stocks that are strong, undervalued investments.
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Short Analysis - Piotroski Score: 7

We're running Honeywell (HON) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Criteria
Company has a positive net income?
1
Company has a positive cash flow?
1
Return on Assets (ROA) are growing?
1
Operating Cashflow are higher than Netincome?
0
Leverage is declining?
0
Current Ratio is growing?
1
Number of shares not diluted?
1
Cross Margin is growing?
1
Asset Turnover Ratio is growing?
1

The Piotroski F-Score helps investors determine if a company is financially strong using a score from 0-9 based on nine profitability, liquidity, and operating efficiency criteria. Honeywell (HON) scored 7, indicating a strong financial position. In terms of profitability, Honeywell shows positive net income, growing Return on Assets (ROA), and a solid Cash Flow from Operations (CFO), but its operating cash flow is slightly weaker when compared to net income. For liquidity, Honeywell's current ratio is growing and it benefits from a historical reduction in outstanding shares, but increased leverage over the past year is a concern. Regarding operating efficiency, the company has increased both its gross margin and asset turnover ratio drastically.

Insights for Value Investors Seeking Stable Income

Considering Honeywell's strong Piotroski F-Score of 7, stable profitability, increasing ROA and current ratio, and positive operational efficiency, it appears to be a solid investment opportunity worth considering. However, potential investors should keep an eye on the company's leverage and ensure it does not keep increasing. Overall, for long-term investors seeking stable growth, Honeywell represents a robust option in the stock market.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Honeywell (HON)

Company has a positive net income?

Net income indicates a company’s profit after all expenses have been deducted from revenues. A positive net income is crucial for gauging the company’s profitability and overall financial health.

Historical Net Income of Honeywell (HON)

Honeywell's net income for 2023 is $5,658 million, which is positive. This is a good trend, suggesting the company is generating profit. Historically, since 2003, the net income has shown a generally upward trend, despite some fluctuations. Highlights include a peak in 2018 with $6,765 million and significant profitability years like 2017 and 2019 with $6,143 million and $5,542 million respectively. Thus, Honeywell earns 1 point for a positive net income by the Piotroski F-Score criterion. Given the stability and overall increment in profits, this is a robust indicator of the company's sustained financial performance.

Company has a positive cash flow?

Check if Cash Flow from Operations (CFO) is positive. A positive CFO is crucial as it indicates a company's ability to generate sufficient cash from its core business operations, supporting growth and sustaining operations without needing external financing.

Historical Operating Cash Flow of Honeywell (HON)

The Cash Flow from Operations (CFO) for Honeywell in 2023 amounts to $5,340,000,000 (USD), which is positive. This robustness in cash flow indicates a continuing healthy generation of operational cash. Over the last twenty years, Honeywell has maintained a consistently positive CFO, exhibiting a general increasing trend from $2,199,000,000 in 2003 to the latest figure, despite some fluctuations. This positive streak reinforces the company's reliable cash-generating mechanisms, providing financial stability and broader strategic options for growth. Such performance favors stakeholders and earns Honeywell 1 point in the Piotroski Analysis.

Return on Assets (ROA) are growing?

Return on Assets (ROA) measures a company's ability to generate profit from its assets, reflecting operational efficiency.

Historical change in Return on Assets (ROA) of Honeywell (HON)

Honeywell's ROA increased from 0.0784 in 2022 to 0.0914 in 2023, marking a positive trend with a rise of 16.58%. This improvement can be attributed to enhanced operational efficiency and effective asset utilization. Adding 1 point for this criterion, Honeywell's ROA outpaced its historical internal achievements, although it remains below the industry median of 0.2782 for 2023. Over the past 20 years, the company's ROA has fluctuated, but the recent uptick signifies a robust phase. Additionally, Honeywell's operating cash flow, which was $5,340 million in 2023, consistently showcases its capability to sustain operations and support asset-driven growth.

Operating Cashflow are higher than Netincome?

The criterion checks whether the operating cash flow is higher than the net income to assess earnings quality and cash generation ability.

Historical accruals of Honeywell (HON)

In 2023, Honeywell's operating cash flow was $5,340,000,000, while the net income was $5,658,000,000. This means the operating cash flow is lower than the net income, yielding a score of 0 for this criterion. This is considered a negative signal for earnings quality, as a strong company typically generates more cash flow than its net income, ensuring the earnings are not just accounting profits but are backed by real cash. Over the past two decades, Honeywell's operating cash flow has generally followed an upward trend but has faced fluctuations. For instance, a peak was observed in 2019 with $6,897,000,000. Yet, compared to earnings, the operating cash flow has occasionally lagged behind—indicative of some periods where cash generation was not robust. Therefore, the observation for 2023 is part of a broader mixed trend concerning Honeywell's cash flow vis-à-vis net income.

Liquidity of Honeywell (HON)

Leverage is declining?

Change in leverage evaluates the company's debt level by comparing the ratio of total debt to total assets over different periods. It's important to assess whether leverage has increased or decreased.

Historical leverage of Honeywell (HON)

Examining Honeywell's leverage ratios, it increased from 0.2553 in 2022 to 0.2838 in 2023. This indicates a rise in debt levels relative to assets, and this is typically viewed negatively as higher leverage can add financial risk. Over the last two decades, the leverage shows trends and fluctuations, peaking at 0.2838 in 2023.

Current Ratio is growing?

The current ratio assesses a company's ability to pay short-term obligations with its current assets. Evaluating Honeywell's current ratio over time reveals improvements or deteriorations in liquidity.

Historical Current Ratio of Honeywell (HON)

As per the given numbers, Honeywell's current ratio increased slightly from 1.253 in 2022 to 1.2677 in 2023. This increase suggests Honeywell's liquidity position has improved, albeit marginally. With an increase noted, we add 1 point in the Piotroski calculation. To further elaborate, a higher current ratio indicates better capacity to cover short-term liabilities. Over the last 20 years, Honeywell's current ratio has fluctuated, reaching a high of 1.6988 in 2003 and a low of 1.0793 in 2008, demonstrating resilience through various economic conditions. However, compared to the industry median, which stood at 1.4575 in 2023, Honeywell remains below industry levels but shows a positive trend year-over-year. Thus, for 2023, this trend can be viewed positively, though it underscores the necessity for Honeywell to further bolster its liquidity going forward.

Number of shares not diluted?

Change in Shares Outstanding evaluates whether the company has reduced its shares over a specific period. Fewer shares may be a positive indicator, reflecting share buybacks.

Historical outstanding shares of Honeywell (HON)

From 2022 to 2023, Honeywell's outstanding shares decreased from 677.1 million to 663 million. This reduction adds 1 point as per Piotroski, reflecting positively. Over two decades, shares were reduced from 859.7 million in 2003 showing consistent reduction trend.

Operating of Honeywell (HON)

Cross Margin is growing?

Gross Margin measures the percentage of revenue that exceeds the cost of goods sold, reflecting financial health.

Historical gross margin of Honeywell (HON)

For Honeywell (HON), the Gross Margin increased from 0.3699 in 2022 to 0.3728 in 2023, an uptick of 0.29%. This increment is favorable and results in 1 point for the Piotroski Score. Such an increase indicates improved cost efficiency and higher profit relative to revenue. Reviewing historical data reveals this is Honeywell's highest gross margin in 20 years, often surpassing the industry median, reflecting strong competitive positioning.

Asset Turnover Ratio is growing?

Asset Turnover measures a company's efficiency in using its assets to generate sales. A higher ratio indicates better performance.

Historical asset turnover ratio of Honeywell (HON)

The Asset Turnover for Honeywell (HON) increased from 0.5596 in 2022 to 0.5923 in 2023, yielding a point for this criterion. This uptick signifies improved operational efficiency. Notably, the ratio had been on a declining trend for several years until reaching a low of 0.5295 in 2020, evidencing a promising reversal. Such progression indicates strategic initiatives that are contributing positively to asset utilization, thereby enhancing revenue generation capabilities.


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