As the year drew to a close, we took a look at all 30 stocks in the Dow Jones Industrial Average, starting with the worst performers— Boeing and Walgreens Boots Alliance —and working our way up to the highest-flying stock in the benchmark—Apple.
It was a surprising, even exhausting year for Honeywell International. But after a lot of work, it looks as if the company is better positioned as the worldwide economy begins to recover in 2021.
That’s good news for Honeywell investors. They had to overcome a lot of doubts about the company and its aerospace unit as the pandemic raged across the globe.
The surprising part of the year, in one respect, is the stock price. In 2020, Honeywell shares added 20.2%, better than the comparable 7.2% change in the Dow.
That Honeywell shares generated solid returns for investors isn’t the surprise. Shares, excluding dividends, have risen in nine of the past 10 years by an average amount of about 15% a year. That’s roughly 4 percentage points better than the S&P 500 over the same span.
The surprise has to do with Covid-19. Honeywell is a large aerospace supplier and Covid decimated demand for flights. In the depths of the pandemic U.S. commercial air traffic was down more than 90%. Honeywell stock bottomed out near $100 in March, after opening the year at about $177. Things weren’t looking good.
Now the stock is above $200. Vaccines helped. Honeywell stock, in fact, is up about 30% over the past three months, boosted by the emergency-use approvals of Pfizer’s (PFE) and Moderna’s (MRNA) coronavirus vaccines.
Honeywell management did what they could to enhance shareholder returns too, signing partnerships with many companies. Honeywell struck deals with enterprise software giant SAP (SAP. Germany) and software behemoth Microsoft (MSFT) as well as with Signify (LIGHT. Amsterdam), a lighting company, and the data-center service provider Vertiv (VRTV).
It’s a diverse group, but “technology is [the] backbone of these partnerships,” Vimal Kapur, president and CEO of Honeywell Building Technologies, told Barron’s. Honeywell’s goal is to build a unified platform that can integrate data from multiple operational control systems. That makes it possible to use the aggregated data to improve and optimize industrial assets in real time.
Investors might be familiar with integrated software tracking expenses, time off, and customer contacts, but the same systems don’t really exist in the industrial operations arena. Each of the partnerships enhance Honeywell’s ability to create that operational technology platform for new and existing customers.
“It was a tough year from a market standpoint,” said Kapur. “We took the approach: How [do we] drive better outcomes for customers.”
He sees more partnerships coming in 2021 and beyond. “This isn’t a numbers game, not a quantity game, but a quality game,” said Kapur. Honeywell will remain selective on who it partners with, though it is likely to collaborate with large incumbents, such as Signify.
But it will also buy companies to enhance its offerings. Honeywell made two relatively small software acquisitions in December. One was related to mobile-device data visualization and one related to quality control in the life science industry.
If it is successful, the continuing development of Honeywell’s operational technology platforms should show up in higher sales growth. That would be good for earnings and could also keep Honeywell stock working for investors.
Barron’s recently wrote positively about Honeywell, believing its investment in software would enhance the value of its existing industrial businesses. Since that article appeared in November 2019, Honeywell stock has returned about 20%, including dividends. That lags behind the return of the S&P 500 by about 2 percentage points. But it’s better than the return of the Dow by about 8 percentage points.
And there was one other surprise for Honeywell investors in 2020. It was added to the Dow. It is a component now, but didn’t start out the year in the index.
Write to Al Root at [email protected]
