The Razor’s Edge

2-Year Price History

Ockham’s Rating

HON Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at HON through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 1.42x and 0.88x respectively.

Utilizing this range we can see that HON’s current Price to Sales per share ratio of 0.60x is significantly below its average levels historically. In fact, with a current price of $31.63, HON is a full 48% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for HON.

HON Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. HON is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for HON, the current level of Cash Earnings compared to its historical levels helps identify where HON is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 21.59 and a historical low Cash Earnings per share ratio of 12.53, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for HON? From the Ockham perspective, we are looking specifically at HON to see if the market is recognizing the huge disparity between HON’s past stock price to Cash Earnings ratio to today’s levels. At a difference of 64% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at HON. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

HON Dividends

When determining a company’s future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn’t imperative for HON to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for HON is $1.21 producing a current dividend yield of 3.83%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from HON against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from HON over previous years was 5.25% while the lowest dividend yield was 1.24%. If you are looking for some “bang for your buck” then a dividend yield of 18.03% above the historical median should be enticing. HON receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.