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Honeywell: Why It's At All-Time Highs

By: Nicole Urken | 03/05/14 - 05:24 PM EST

Stocks in this article: HON

NEW YORK (TheStreet) -Honeywell (HON) is hit new highs today after its analyst day. And while the company is well situated for cyclical growth, the real reason for its outperformance is that its CEO Dave Cote has been able to set long-term goals and surpass them

This morning, Honeywell announced its new five year targets (2014-2018), which it discussed in detail at its investor day. The company expects to grow organic sales at a 4-6% CAGR to $46-51bn by 2018, augmented by $5-8bn in M&A.  And, management targets another 220-370bps margin expansion to 18.5-20%.  This will drive double digit earnings growth.  The company is balancing capital allocation between growth (50%) and return to shareholders (50%).

When you hear the term "Five Year Plan," you think of the and of Mao... and their planning oriented centralized communist economy. Cote's five-year plan is a celebration, on the other hand, of capitalism. Cote consistently has surpassed his original targets. For example, in 2010 he set out a goal of 6-8% revenue growth. Then in his March 2011 analyst day, he raised that to 7-9%.

The company, which is organized into four business units--Automation & Control Solutions (42% of sales), Aerospace (32% of sales), Performance Materials & Technologies (16% of sales) and Transportation Systems (10% of sales)--has solid exposure both to the US (about half of revenue) but also to high-growth international regions (205 of sales).  Importantly, whie the company is benefiting from cyclical drivers (aerospace, aftermarket growth, global petroleum refining), the real reason for outperformance is the management under Dave Cote.  He has balanced cyclical recovery with secular themes including energy management (particularly through the ACS segment) ... and it's working, with a solid yield to boot!

--Written by Nicole Urken in New York.

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