Honeywell stock sinks after new agreement inked with Bombardier reduces guidance

• Honeywell stock sinks over 2% as company lowers Q4 guidance.
• Adjusted EPS in Q4 could sink as much as $0.47.
• Revenue also expected to fall by $400 million compared to prior guidance.
• Honeywell completed a new deal with Bombardier that will require heavy investment.

Honeywell (HON) stock led the Dow Jones Industrial Average (DJIA) lower on Tuesday after cutting its profit outlook following a partnership with Bombardier. HON shares lost between 2% and 3% as the industrial company continues to recede from its all-time high in November.

The larger market has drifted lower despite good news on the US employment front. The October JOLTS Job Openings report showed vacancies rising to 7.744 million, more than 250K above Wall Street expectations. The quit rate also rose from 1.9% to 2.1%, something that usually only happens in a strong labor market.

The President of South Korea suddenly calling for “martial law” has rattled US equities somewhat, especially those with exposure to the Asian economy.

Honeywell stock news

The market hasn’t taken a liking to Honeywell's new partnership with Canadian airplane manufacturer Bombardier. Typically, new business drives stocks higher, but this partnership will require heavier investment from Honeywell.

Honeywell’s statement late Monday said it had agreed to supply Bombardier with advanced technology used in “avionics, propulsion and satellite communications” systems in current and future Bombardier airplane models.

The industrial powerhouse said the partnership would require extensive capex that would put a dent in fourth-quarter results. It estimated that this would account for a $0.47 reduction in adjusted earnings per share (EPS) in Q4 and a reduction in sales of $400 million compared with prior projections.

Honeywell now projects Q4 adjusted EPS between $2.26 and $2.36, down from a prior midline of $2.78. Fourth-quarter revenue was cut to a range of $9.8 billion to $10.0 billion from a midpoint estimate of $10.3 billion.

For the annual result, adjusted EPS is now projected in a range of $9.68 to $9.78, down from a prior midpoint of 10.20.

Prior litigation in which Bombardier had alleged that Honeywell was selling propulsion system components to Bombardier’s competitors for lower prices has been ended due to this new agreement.

Honeywell stock forecast

Honeywell is coming off the all-time high it achieved on November 12 when the Elliot Management hedge fund announced it intention to push for a breakup of the company into multiple units. That volatile session saw a high of $242.77. Since then the stock has flagged.

HON shares are now back to trading within the 18-month ascending resistance range (highlighted in green in the daily chart below) that the stock only broke through on November 11.

Whenever management cuts the outlook, a sell-off should be expected. This one probably hasn't even finished yet. Expect a full entry into the former resistance range and possible a full pull back to the low $210s. The 100-day Simple Moving Average (SMA) looks like a worthy point of support. However, Honeywell will remain in an uptrend until it breaks below late October support near $203.

HON daily stock chart