Honeywell's Q2 Viewed As 'Less Pristine' Than Usual, Says Credit Suisse

"This, the de-rating in many Aerospace pure-plays YTD, the lowering of HON's own Aerospace earnings guidance, and the substantial changes in leadership underway at the helm of the organization may cap the degree of the valuation multiple expansion which the investment community consensus (80+ percent of sell-side ratings are 'Buy') seems to believe is warranted," analyst Julian Mitchell wrote in a note.

Related Link: Morgan Stanley On Honeywell: "Is This Quarter A Game Changer?"

In addition, Honeywell expects third quarter segment margins to decline by about 50bps, but the FY16 margin guide for expansion of 10–50bps implies 100–150bps of year-over-year expansion in Q4, off a quarter whose margin was the second-highest in history for the company (18.8 percent).

That said, the company's EPS beat estimates and the FY mid-point EPS guidance was increased despite a slight organic sales miss and a reduction in overall FY sales guidance.

Further, the analyst noted that the stellar performance of the process business in a weak demand environment shows that Honeywell is taking sizeable share in some key markets.

Mitchell has a Neutral rating with a price target of $114 on the stock, which closed Friday's regular trading session at $115.61.

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