Buy Honeywell Over GE? This Analyst Is

Honeywell International Inc. HON may be a better purchase than General Electric Company GE, according to a recent Deutsche Bank research piece.

"In our opinion, Honeywell fundamentals have continued to line up more favorably over the past few weeks," the analysts began. "We believe there to be an abundance of favorable HON attributes that should allow HON to outperform GE."

The analysts have Buy rating on Honeywell, with an attached price target of $120.

Additionally, the firm reiterated its long Honeywell versus GE call, citing positive fundamentals, elevated EPS "runway," greater margin upside compared to GE, faster dividend growth, valuation spreads benefiting Honeywell versus GE, higher quality of earnings and the company's decision to back out of bidding for United Technologies Corporation UTX.

Related Link: United Technologies CEO: Honeywell Combo Would Be Blocked, Destructive To Shareholder Value

The firm increased its target price on Honeywell from $105 to $120, viewing the previous forecast as conservative, "In turn, we believe a slightly higher HON target is warranted based on historical valuation […] given what increasingly appears to be an upside earnings runway from the current consensus forecast."

In addition, Deutsche Bank called the company's reaffirmed guidance conservative, as well, which could add 1–2 percent EPS, according to the analysts' estimates.

"We currently forecast HON core growth in 2017 to be just 2.5 percent. Consequently, an extra 2 points of realized top line growth at 30 percent incremental profit contribution could drive ~25 cents of higher EPS than our current $7.05 forecast, or more if the company were also to pursue faster share repurchase.

"In contrast," the analysts elaborated, "we do not see much upside from the GE consensus forecast over the next two years – particularly considering the roll-over that GE has experienced for its equipment orders over the past two quarters. Moreover, if HON were to realize 4–5 percent core growth in 2017, we believe that would beat GE's realized future core growth rate."