In this article, I evaluated two industrial stocks, General Electric Company (GE) and Honeywell International Inc. (HON), to analyze their potential. After thoroughly evaluating these stocks, I think HON might be a superior choice for the reasons discussed in this article.
The industrial machinery market has been growing steadily over the years, driven by automation and the modernization of production processes. Manufacturers are increasingly adopting advanced technologies like the Internet of Things (IoT), Artificial Intelligence (AI), and Robotics to enhance the efficiency and productivity of their machinery. These technologies offer several benefits, such as real-time monitoring, predictive maintenance, and improved safety in the workplace.
The global industrial machinery market is expected to grow at a CAGR of 5.3% until 2032.
Furthermore, the global demand for specialized industrial services is rising due to the interconnectedness of the global economy and continuous growth in manufacturing. The industrial services market is projected to reach $51.98 billion by 2032, expanding a CAGR of 5.7%.
GE gained 26.7% over the past three months compared to HON’s 5.2% gain. The stock has gained 26.7% over the past six months compared to HON’s 1.7% gain.
However, here are the reasons why I think HON might perform better in the near term:
Recent Developments
On January 9, 2024, GE announced a new equipment and long-term services deal with Pattern Energy to supply 674 3.6-1541 wind turbines that will provide more than 2.4 gigawatts (GW) of power at the SunZia Wind project in New Mexico.
Conversely, On February 2, 2024, HON announced it would invest $84 million to expand its Olathe manufacturing facility in Kansas. The project, which is expected to generate nearly $47 million in total gross domestic product (GDP) and contribute $18.3 million to state and local taxes in the first six years, supports the company's alignment with the compelling megatrend of the future of aviation.
Recent Financial Results
During the fiscal fourth quarter that ended December 31, 2023, GE’s total revenues increased 15.4% year-over-year to $19.42 billion. Its adjusted profit came in at $1.77 billion, up 30% year-over-year. However, the company’s non-GAAP free cash flow declined 30% year-over-year $2.96 billion.
On the contrary, Conversely, HON’s net sales for the fourth quarter ended December 31, 2023, increased 2.8% year-over-year to $9.44 billion. The company’s net income increased 22.2% from the year-ago quarter to $1.25 billion. Additionally, its adjusted EPS came in at $1.91, representing an 26.5% increase from the prior-year quarter.
Past And Expected Financial Performance
Over the past year, GE’s revenue increased at a 17% CAGR. Analysts expect GE’s revenue to increase by 8.2% in the year ending December 2024 and 10.2% in the first quarter ending March 2024. Its EPS is expected to increase 62.7% in the year ending December 2024 and 10.2% in the first quarter ending March 2024.
Conversely, HON’s revenue has increased at a CAGR of 3.4% over the past year. Analysts expect HON’s revenue to grow by 5.6% in the year ending December 2024 and 2.3% in the first quarter ending March 2024. Its EPS is expected to increase 8.7% in the year ending December 2024 and 5.2% in the first quarter ending March 2024.
Valuation
GE’s forward EV/EBITDA multiple of 14.84 is higher than HON’s 14.10. GE’s forward non-GAAP P/E multiple of 29.86x is higher than HON’s 19.69x.
Thus, HON is more affordable.
Profitability
GE’s trailing-12-month gross profit margin of 21.83% is lower than HON’s 37.28%. In addition, GE’s trailing-12-month asset turnover ratio of 0.39x is lower than HON’s 0.59x.
Thus, HON is more profitable.
POWR Ratings
GE has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, HON has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. GE has a C grade in Quality. Its trailing-12-month EBIT margin of 8.53% is 11.98% lower than the industry average of 9.56%. However, its trailing-12-month net income margin of 13.95% is 129.5% higher than the 6.08% industry average.
On the other hand, HON has a B grade in Quality. Its trailing-12-month EBIT margin of 19.32% is 99.3% higher than the industry average of 9.69%. Its trailing-12-month net income margin of 15.43% is 153.8% higher than the 6.08% industry average.
Moreover, GE has a C grade for Stability, which is justified by its 24-month beta of 1.02. On the other hand, HON has an A grade for Stability, which is in sync with its 24-month beta of 0.79.
Among the 35 stocks in the in the B-rated Industrial - Manufacturing industry, GE is ranked #13, while HON is ranked #30.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Value, and Sentiment. Get all GE ratings here. Click here to view HON ratings.
The Winner
The industrial sector is seeing steady gains as a result of technological advancements and the flourishing machinery, packaging, and service sectors. Industry players such as GE and HON are well-positioned to benefit from these industry tailwinds.
However, HON’s higher profitability and lower valuation makes it the better buy here.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Industrial - Machinery industry here.
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HON shares were trading at $193.36 per share on Monday afternoon, down $2.75 (-1.40%). Year-to-date, HON has declined -7.80%, versus a 3.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
General Electric (GE) vs. Honeywell International (HON) - 2024 Market Insights StockNews.com
