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Honeywell (NASDAQ:HON) was downgraded to Sell from Buy with the price target cut to $193 from $220 by UBS analysts in a note Wednesday.
They explained to investors that the firm has decided to downgrade the stock on a “more than full valuation,” an anticipated order slowdown, and “uninspiring exposures.”
“HON’s outsized $29B backlog into the 2023 slowdown will likely protect near-term results; however, order momentum is needed to protect valuation… particularly w/ HON at a 2 SDEV premium. While Q3 orders tracked +2% organic, volumes came in down 9% (UBSe) and the price lever is poised to fade into 2023 (Q3’22 price +11%). HON burned material backlog in Q3, a dynamic that could intensify into 1H’23 on further order compression amidst macro slowdown & normalizing lead times” wrote the analysts.
In addition, they argued that end market exposures don’t justify Honeywell’s premium valuation, and with HON shares trading at a historically high valuation, UBS would “categorize end market exposures as just decently positioned for the macro at hand.”
“Despite broad optimism around Defense, we anticipate a sluggish 2023 trajectory as supply chain recovery lags broader industrials. While SPS should be performing well in a macro dominated by wage inflation, tight labor markets and accelerating automation uptake, the business continues to disappoint w/ HSD organic annual declines in ’22 – ’23E,” the analysts added.
Honeywell shares dipped in early trading, currently down more than 1%.
