ATML Earnings Action

Honeywell International Inc. (HON) shares have been led to the slaughterhouse over the past few months, down 51% year to date and 52.82% below its 52-week high of $62.99. Last week, the manufacturing company and former Dow component announced third quarter results that were good - sales of $9.3 billion, an increase of 6% vs. the prior year, earnings per share of $0.97, up 20% from the prior year. However, the full year 2008 outlook was cut a bit, with management now calling for $3.76 and $3.80 a share on revenue of $37.2 billion, slightly below the analyst consensus of $3.81 and $37.8 billion. On the conference call, executives saw a slower growth environment for the global economy with both developed and developing regions being impacted and recessionary conditions in the US and Europe for 2009 but were mum on specifics of the business and earnings per share outlook, saying details would not be provided until a December 9th update.

That didn’t stop analysts from slashing estimates though. Looking ahead to next year, analysts at Sterne Agee said earnings could be down by as much as 20%, which seems pretty harsh. According to Dow Jones, Stern Agee said the industrial company faces a “brutal new world environment where GDP could fall globally in 2009 due to the worldwide liquidity freeze." The firm cut its 2009 EPS target to $3.20 from $4.45, assuming a sales decline of 3.2% next year due to a sharp decline in the US and European auto industry and a growing decline in capital spending and residential and commercial construction.

But at the current share price, reducing estimates that much implies a forward PE of about 9, meaning that a lot of the downside in the earnings numbers appear priced in to a fair degree. With the Street setting the bar pretty low already, this could set up Honeywell for a positive surprise come December.