Honeywell Aerospace (HONA) Following Its $16b Debt Exchange, Is The Valuation Now Too Cheap?

Honeywell Aerospace debt exchange and what it could mean for HONA stock

Honeywell Aerospace (HONA) has just completed a sizeable fixed income exchange offer of about US$16b, swapping unregistered senior notes for registered ones across maturities from 2028 through 2066, without raising new cash.

See our latest analysis for Honeywell Aerospace.

Honeywell Aerospace shares now trade at US$165.88. The 1 month share price return is down about 17% and the year to date share price return is also down around 17%. This points to fading momentum even as the recent US$16b debt exchange and an August analyst upgrade have focused attention on how the current valuation lines up with the company’s fundamentals and debt profile.

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For Honeywell Aerospace, a 17% slide in a month alongside a US$16b debt reshuffle raises a simple tension: Are you looking at a business being reassessed, or a swing in sentiment that pushed valuation too far?

Price-to-earnings of 27x for Honeywell Aerospace: Is it justified?

At a last close of $165.88, Honeywell Aerospace trades on a P/E of 27x, which screens as cheaper than both peers and the wider US Aerospace & Defense industry.

The P/E multiple measures how much investors are paying today for each dollar of current earnings. For a mature aerospace supplier like Honeywell Aerospace, it is a quick way to compare what the market is willing to pay for its earnings against similar companies.

On a peer comparison, HONA is described as good value on a 27x P/E versus a peer average of 35.3x. Against the broader US Aerospace & Defense industry, that 27x multiple also comes in below the 40.5x industry average. Taken together, the data points to the market assigning a lower earnings multiple to Honeywell Aerospace than to many comparable stocks, despite revenue of $17.9b and net income of $1.9b.

In parallel with the P/E signal, the SWS DCF model estimates a future cash flow value of $255.26 per share for HONA, compared with the current $165.88 share price. That model projects future cash flows and discounts them back to today using a required return, which can be useful for a business with forecast earnings and revenue growth already laid out. For Honeywell Aerospace, this DCF view aligns with the qualitative statement that the stock is trading about 35% below an internal fair value estimate and that analysts expect earnings and revenue to grow, even if those growth rates are not described as high relative to the broader US market.

Look into how the SWS DCF model arrives at its fair value.

Result: Price-to-earnings of 27x (UNDERVALUED)

However, the recent 17% share price decline and Honeywell Aerospace’s sizeable US$16b debt exchange could flag shifting sentiment as well as refinancing or execution risks.

Find out about the key risks to this Honeywell Aerospace narrative.

Another view on Honeywell Aerospace’s valuation

While Honeywell Aerospace looks inexpensive on a 27x P/E compared with peers, the SWS DCF model adds a different angle. It suggests a future cash flow value of $255.26 per share versus the current $165.88 price, which indicates the stock is trading at a sizeable discount.

This kind of gap between an earnings multiple and a cash flow estimate is not uncommon. It does, however, raise a practical question: Is the market correctly pricing in the company’s mixed signals on growth, margins and balance sheet risk, or is it leaning too far to one side?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Honeywell Aerospace for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 50 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

The mix of pressure and potential around Honeywell Aerospace will mean different things to different investors, so it makes sense to move quickly and review the full picture for yourself, including the 4 key rewards and 4 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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