Honeywell (HON)

Industrial conglomerate Honeywell (NASDAQ:HON) reported revenue ahead of Wall Street’s expectations in Q3 CY2025, with sales up 7% year on year to $10.41 billion. The company expects the full year’s revenue to be around $40.8 billion, close to analysts’ estimates. Its non-GAAP profit of $2.82 per share was 9.9% above analysts’ consensus estimates.

Company Overview

Originally founded in 1906 as a thermostat company, Honeywell (NASDAQ:HON) is a multinational conglomerate known for its aerospace systems, building technologies, performance materials, and safety and productivity solutions.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand for general industrial machinery companies. Those who innovate and create digitized solutions can spur sales and speed up replacement cycles, but all general industrial machinery companies are still at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Siemens AG (NYSE:SIE), Johnson Controls International (NYSE:JCI), Emerson Electric (NYSE:EMR), and Raytheon Technologies (NYSE:RTX).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Honeywell’s 4.1% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Honeywell’s annualized revenue growth of 5.7% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Honeywell’s organic revenue averaged 3.6% year-on-year growth. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Honeywell reported year-on-year revenue growth of 7%, and its $10.41 billion of revenue exceeded Wall Street’s estimates by 2.6%.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and suggests its products and services will see some demand headwinds.

For industrials businesses, cost of sales is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics in the short term and a company’s purchasing power and scale over the long term.

Honeywell’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 36.2% gross margin over the last five years. Said differently, roughly $36.17 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

Honeywell’s gross profit margin came in at 34.1% this quarter, marking a 4.5 percentage point decrease from 38.5% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Honeywell has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 20.9%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Honeywell’s operating margin decreased by 2.1 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Honeywell generated an operating margin profit margin of 16.9%, down 5 percentage points year on year. Since Honeywell’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Honeywell’s EPS grew at a decent 8.3% compounded annual growth rate over the last five years, higher than its 4.1% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

Diving into Honeywell’s quality of earnings can give us a better understanding of its performance. A five-year view shows that Honeywell has repurchased its stock, shrinking its share count by 10%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Honeywell, its two-year annual EPS growth of 7.7% is similar to its five-year trend, implying stable earnings.

In Q3, Honeywell reported adjusted EPS of $2.82, up from $2.58 in the same quarter last year. This print beat analysts’ estimates by 9.9%. Over the next 12 months, Wall Street expects Honeywell’s full-year EPS of $10.55 to grow 2.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Honeywell has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 13.9% over the last five years.

Honeywell’s free cash flow clocked in at $2.91 billion in Q3, equivalent to a 28% margin. This result was good as its margin was 10.3 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Honeywell hasn’t been the highest-quality company lately because of its poor top-line performance, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 21.2%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Honeywell’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Honeywell reported $12.93 billion of cash and $37.04 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $11.02 billion of EBITDA over the last 12 months, we view Honeywell’s 2.2× net-debt-to-EBITDA ratio as safe. We also see its $991 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Honeywell beat analysts’ organic revenue expectations this quarter. We were also glad its revenue outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 4% to $214.70 immediately after reporting.

Updated: December 3, 2025 at 11:01 PM EST

Are you wondering whether to buy Honeywell or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Honeywell isn’t a terrible business, but it doesn’t pass our bar. To kick things off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its projected EPS for the next year is lacking. On top of that, its diminishing returns show management's prior bets haven't worked out.

Honeywell’s P/E ratio based on the next 12 months is 18.8x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $241.67 on the company (compared to the current share price of $193.58).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.