Stock Analysis on Net

Honeywell International Inc. (NASDAQ:HON)

Dividend Discount Model (DDM) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Honeywell International Inc., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 13.94%
0 DPS01 4.17
1 DPS1 4.84 = 4.17 × (1 + 16.00%) 4.25
2 DPS2 5.56 = 4.84 × (1 + 14.90%) 4.28
3 DPS3 6.32 = 5.56 × (1 + 13.79%) 4.28
4 DPS4 7.13 = 6.32 × (1 + 12.69%) 4.23
5 DPS5 7.95 = 7.13 × (1 + 11.59%) 4.14
5 Terminal value (TV5) 377.04 = 7.95 × (1 + 11.59%) ÷ (13.94%11.59%) 196.31
Intrinsic value of Honeywell International Inc. common stock (per share) $217.48
Current share price $197.69

Based on: 10-K (reporting date: 2023-12-31).

1 DPS0 = Sum of the last year dividends per share of Honeywell International Inc. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.53%
Expected rate of return on market portfolio2 E(RM) 13.63%
Systematic risk of Honeywell International Inc. common stock βHON 1.03
 
Required rate of return on Honeywell International Inc. common stock3 rHON 13.94%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rHON = RF + βHON [E(RM) – RF]
= 4.53% + 1.03 [13.63%4.53%]
= 13.94%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Honeywell International Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends on common stock 2,772 2,700 2,620 2,567 2,428
Net income attributable to Honeywell 5,658 4,966 5,542 4,779 6,143
Net sales 36,662 35,466 34,392 32,637 36,709
Total assets 61,525 62,275 64,470 64,586 58,679
Total Honeywell shareowners’ equity 15,856 16,697 18,569 17,549 18,494
Financial Ratios
Retention rate1 0.51 0.46 0.53 0.46 0.60
Profit margin2 15.43% 14.00% 16.11% 14.64% 16.73%
Asset turnover3 0.60 0.57 0.53 0.51 0.63
Financial leverage4 3.88 3.73 3.47 3.68 3.17
Averages
Retention rate 0.51
Profit margin 15.39%
Asset turnover 0.57
Financial leverage 3.59
 
Dividend growth rate (g)5 16.00%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income attributable to Honeywell – Dividends on common stock) ÷ Net income attributable to Honeywell
= (5,6582,772) ÷ 5,658
= 0.51

2 Profit margin = 100 × Net income attributable to Honeywell ÷ Net sales
= 100 × 5,658 ÷ 36,662
= 15.43%

3 Asset turnover = Net sales ÷ Total assets
= 36,662 ÷ 61,525
= 0.60

4 Financial leverage = Total assets ÷ Total Honeywell shareowners’ equity
= 61,525 ÷ 15,856
= 3.88

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.51 × 15.39% × 0.57 × 3.59
= 16.00%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($197.69 × 13.94%$4.17) ÷ ($197.69 + $4.17)
= 11.59%

where:
P0 = current price of share of Honeywell International Inc. common stock
D0 = the last year dividends per share of Honeywell International Inc. common stock
r = required rate of return on Honeywell International Inc. common stock


Dividend growth rate (g) forecast

Honeywell International Inc., H-model

Microsoft Excel
Year Value gt
1 g1 16.00%
2 g2 14.90%
3 g3 13.79%
4 g4 12.69%
5 and thereafter g5 11.59%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 16.00% + (11.59%16.00%) × (2 – 1) ÷ (5 – 1)
= 14.90%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 16.00% + (11.59%16.00%) × (3 – 1) ÷ (5 – 1)
= 13.79%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 16.00% + (11.59%16.00%) × (4 – 1) ÷ (5 – 1)
= 12.69%