Honeywell Purchase of Warehouse Automation Company a Potential Boon for Investors
Logistics has become increasingly important in e-commerce. But that goes beyond consumer-facing retailers ability to move goods efficiently.
Honeywell (HON) - Get Report , a multinational manufacturer of industrial and aerospace products, including thermostats and missiles -- has been ramping up its logistics capabilities to facilitate online sales. And today, the company announced that it is purchasing fulfillment solutions provider Intelligrated from private equity firm Permira for $1.5 billion in cash. Honeywell beat out Toyota in the competition for the logistics firm.
The acquisition could give a boost to the company, which is already trading at near 52-week highs.
Intelligrated designs, produces, and installs automation systems for warehouses. Customers include the United Parcel Service and Amazon. "E-commerce continues to grow at an unprecedented rate, and customer demands for faster delivery times have created a need for warehouse, logistics, and fulfillment solutions that can increase productivity and lower costs for our customers," said Honeywell's Automation and Control Solutions exec Alex Ismail.
Honeywell expects a much-needed boost from Intelligrated's businesses. Honeywell saw a 4.3% drop in sales in 2015. The company expects Intelligrated to generate sales of more than $900 million for 2016. Intelligrated has seen an average increase of 13% to revenue each year for the last three years.
Earlier this year, Honeywell made a play for United Technologies, which supplies products and support services to the aerospace and construction industries. However, that bid was rejected, especially after United's main customer, Airbus, protested. The takeover would have been worth an estimated $90 billion.
The Intelligrated acquisition, while much smaller than the proposed United deal, makes sense and should help Honeywell's business grow. Mid-sized purchases of logistics firms have been something of a trend, kicked off by Amazon's purchase of robotics company Kiva Systems for $775 million in 2012.
Honeywell stock traded up slightly on the news. It is close to last month's year-long high of $118.53 per share. The consensus target price is currently $124.916 per share for the next 12 months, with the most favorable forecast at $130 per share. This would give investors some tidy profits.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.