Honeywell International Inc (HON)

By both methods, the value today (DCF $183 · Multiples $145) is below the market price ($210).

Today — expensive, no margin of safety: at $210 trades ~44.3% above its value discounted to today (~$145); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$90.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($210) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (9.2%/year) above our base case (6.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$3.1 bn of owner earnings in year 5 (vs ~$2.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/NOPAT — utilidad de segmentos neta de corporativo, después de impuestos (Honeywell Technologies). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

This model's year-0 is not the XBRL's trailing-twelve-month window. Honeywell spun off Honeywell Aerospace on June 29, 2026 and applied a reverse stock split that same day, so the tagged series still consolidates the aerospace business —revenue of $38.06 billion against the $20.18 billion of the actual perimeter— and also carries the $6,629 million gain from the deconsolidation of Quantinuum, which does not recur. Year-0 is built by levels using the trailing twelve months ended June 30, 2026 within the Honeywell Technologies perimeter, chaining two filings: the recast segment supplement from the June 29, 2026 8-K, which publishes quarters through March 2026, and the July 23 press release. Revenue of $4,929, $5,242, $4,823 and $5,187 million sums to $20.181 billion, and segment profit net of corporate of $866, $944, $944 and $985 million sums to $3.739 billion, a margin of 18.53%. The two sources chain on the quarter they share: the second quarter of 2025 is worth $5,018 million of revenue and $904 million of segment profit in both. That is the profit the valuation runs on: the adjusted operating income the company itself reconciles against GAAP operating income. The valuation is by multiple on that after-tax segment profit, a flow before interest, so cash and debt enter through the enterprise-value-to-equity bridge and are subtracted only once. Both legs come from the balance sheet in the same pro forma 8-K, the only one presented within the Honeywell Technologies perimeter: cash of $10,977 million plus short-term investments of $413 million, against commercial paper of $4,630 million, current maturities of $3,094 million and long-term debt of $13,164 million. That balance sheet is dated March 31, 2026, one quarter before year-0, and the gap has no clean fix yet: the balance sheet in the June 30, 2026 quarterly report still consolidates the aerospace business —the report itself states it covers a period before the separation and that aerospace's assets, liabilities and results are presented as continuing operations—, with total assets of $77,344 million against the pro forma's $52,879 million. The first statement on the standalone perimeter will be the third-quarter 2026 quarterly report. Year 1 starts from current guidance and its two anchors: revenue of $19.8 to $20.0 billion and segment margin of 20.1% to 20.5%. The base case takes the midpoints, the adverse scenario the guided floor, and the favorable scenario the ceiling. Guidance is for fiscal 2026 while year 1's window is the trailing twelve months ended June 2027, and the two do not line up: the window loses the remaining months of the Productivity Solutions and Warehouse and Workflow Solutions businesses —sold in early August 2026— and gains the full year of the catalyst business acquired on July 17, two offsetting effects the company does not quantify separately. The guided level is kept and the difference is disclosed, rather than estimating the two effects. That is why year 1 comes in below year-0 in reported terms: the $20.181 billion for the trailing twelve months ended June 2026 still carries a full year of the businesses being sold, while guided organic growth is 3% to 4%. From year 2 onward the path resumes a smooth deceleration toward durable growth of a bit over 4%, with margin rising 40 to 50 basis points per year on operating leverage. Four lines in the model are disclosed. First: the company does not separately present operating cash flow or capital expenditure within the Honeywell Technologies perimeter for a trailing-twelve-month window, so year-0 for those two rows carries the level guided for fiscal 2026, of about $2.1 billion and about $0.6 billion. Second: depreciation is likewise not split between the two companies, so the depreciation and amortization row captures only the amortization of acquisition intangibles that the reconciliation does separate out, $135, $145, $129 and $92 million in the four quarters, or $501 million. Third: year-0 adjusted net income is built from each quarter's adjusted EPS multiplied by its own weighted-average share count —$0.84, $0.92 and $0.89 before the reverse split and $1.95 after— for about $2.31 billion. Fourth: the company has not yet declared its post-separation dividend rate —the last payment on record in a filing is $2.38 per share quarterly, the rate for Honeywell as a whole before the spin-off—, so the model publishes no dividend per share and the estimated return stands as a floor. For the same reason the surplus is not credited as cash: without the dividend rate the cascade cannot compute the retained fraction, and the cash flow left after a $1.2 billion buyback over the trailing twelve months is redeployed between the not-yet-declared payout and the repayment of $20.9 billion of gross debt.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $181 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $210, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $181 in 5 years and a required return of 4.5% annually, the maximum to pay today is $145. Against the current market price ($210), the margin of safety is -44.3% (trades above the maximum → a premium is paid) and the total return at that price would be -2.9% annually.

• Entry multiple. 25× on after-tax segment profit for the trailing twelve months, well above the archetype's 12x-to-18x exit band.
• Exit multiple. 15.0x blend derived from the three segments, within the 12x to 18x band of the industrial archetype.
• Estimated return. -3% annually over five years against today's price, with no dividend credited because the post-separation rate has not yet been declared.

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (107%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. 7.1% against the 10% bar, depressed by the accumulated goodwill of a serial acquirer.
• Cash generation. Guided free cash flow of roughly $2 billion on $2.1 billion of operating cash flow, with light capital investment.
• Reinvestment runway. Capital investment is low relative to sales; growth is bought to a large extent through acquisitions.
• Stock-based compensation. $108 million in the first six months of 2026, insignificant against free cash flow.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

This company's revenue breaks down into installed volume times price, at two different paces: projects, which follow the customer's capital spending and show up first in orders and backlog, and aftermarket — services, spare parts and catalyst reloads — which tracks the installed base. That is why backlog is the leading indicator of project revenue, while aftermarket is read in each segment's organic growth.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Organic growth. Guidance of 3% to 4% for 2026, with 4% to 6% organic growth expected in the second half.
• Orders and backlog. Honeywell Technologies orders up 16% year over year, with backlog of roughly $20 billion.
• Margin expansion. 250 to 290 basis points guided for fiscal 2026 against fiscal 2025, the main lever behind this year's profit growth.
• Durability of the jump. Much of the expansion comes from eliminating shared costs, a lever used only once.

• Recurrence and predictability. Contractual backlog of roughly $20 billion, close to a full year of sales, with services and reload aftermarket revenue on the installed base.
• Differentiated product. Control systems and process technology specified in the facility's design, not interchangeable without reconfiguring the plant.
• Pricing power. Building Automation's margin expanded 90 basis points on volume and price, partially offset by input inflation.
• Exposure to the project cycle. Process and industrial depend on customer capital spending, which stops abruptly in a downturn.
• Commoditization in industrial automation. The annual report acknowledges the risk of product commoditization from new entrants in the lower-margin segment.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)4.7x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 107% of ROIC
• ✕Value creation (ROIC − 10% bar)-3pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.2x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 1.1% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Gross debt. $20.9 billion within the Honeywell Technologies perimeter as of March 31, 2026, elevated against guided free cash flow of about $2 billion.
• Liquidity. $10.98 billion of cash plus $413 million of short-term investments on the pro forma balance sheet as of March 31, 2026.
• Post-separation capital allocation. Buybacks for the trailing twelve months ended June 2026 total $1.2 billion; the independent company's dividend rate has not yet been declared.
• Equity. $16.69 billion within the standalone perimeter as of March 31, 2026, with most of the asset base in goodwill and intangibles.

• Execution of the separation. Completed the spin-off of the aerospace business on the announced timeline and with the associated reverse stock split.
• Acquisition discipline. Bought growth consistently, which left $18.1 billion of goodwill on the remaining company's balance sheet and weighs down return on capital.
• Return of capital. Raised the dividend for the sixteenth time in fifteen years and states a commitment to reduce the share count by at least 1% per year.
• Share ownership. Holdings detail is pending manual reading of the proxy statement; unverified figures are not published.

• It is not cheap: the market is paying for the full reconfiguration. The company guides a 25% to 29% jump in adjusted earnings per share during 2026, and the price already discounts continuity at that pace.
• The separation eliminated the conglomerate discount that weighed on the prior structure. A pure automation business is easier to compare and to value, and that clarity is already priced into the multiple.
• The guided margin expansion — 250 to 290 basis points — arrives largely through the elimination of shared costs, a lever used only once, which the price treats as recurring.

The gap between perception and reality runs against the buyer: what the market reads as the start of a new margin trajectory is, to a large extent, the one-time effect of splitting the company in two. No source of missing buyers or motivated sellers is identified that would justify a discount.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -11%/year (-44% total): the margin of safety protects the downside. The bull (+3%/year, +14% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Margin continuity. The market's thesis requires the expansion guided for 2026 to repeat in following years.
• Industrial automation. $994 million of impairments in 2025 and two businesses for sale that only close in early August 2026.
• Process cycle. Organic sales of minus 1% and margin contracted 180 basis points in the second quarter of 2026.
• Foreign trade. More than half of sales originate outside the United States or are exported from there, with tariff exposure.
• Short accounting history. The remaining company does not yet have several years of its own history; year-0 is built from the recast segment supplement and the second-quarter press release.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 7% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 6% at a multiple/growth of 4.2 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 6% (EBIT/EV) + ROIC 7% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 9% vs our 6%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -11%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: switching costs, intangibles, efficient scale, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 9% vs our 6%: coherent, but at the optimistic end of the range.