Honeywell's (NYSE:HON) earnings report Friday was quickly overshadowed by news reports that one of its devices, an emergency locator transmitter, may be linked to the on-ground fire that broke out in an Ethiopian Airlines-operated Boeing (NYSE:BA) 787 at Heathrow Airport last week.

That shouldn't have happened.

Making volcanoes out of molehills
The thought of having high-tech electronics burst into flame aboard a carbon-fiber tube a mile up in the sky makes flyers nervous. It makes investors nervous, too. Understandably so, in both cases.

But Honeywell has manufactured and sold some 6,000 of the transmitters alleged to have played some sort of (still unconfirmed) role in last week's fire. Boeing has delivered only 66 Dreamliners equipped with the device. So even in the worst-case scenario, the risk to Honeywell from this incident seems limited. Indeed, given that there's never been an incident, similar in seriousness to the Ethiopian incident, reported with Honeywell's device -- despite its having logged some 5 million flight hours -- it's entirely possible that this incident poses no risk to Honeywell stock at all.

Meanwhile, that stock is doing just fine, thank you very much.

Honeywell's earnings Friday showed the company growing revenues 3% in Q2 2013. Operating margins improved to 14.3% -- which makes Honeywell more profitable than General Electric (NYSE:GE), which also reported earnings Friday and saw its stock jump 4.6%, and nearly twice as profitable as Boeing, the source of Honeywell's current image problem.

Cash flow from operations at Honeywell grew 29% in comparison to last year's Q2, and with stable capital investment, free cash flow grew 37% (to $1.06 billion) -- much better than the reported 12% growth in earnings per share.

The real problem
So when you get right down to it, Honeywell had a great earnings quarter, and one potentially glitchy transmitter shouldn't detract from it. But the real problem with Honeywell stock isn't the company's products -- it's its own valuation.

Honeywell's stock is up 45% over the past year, you see, largely (I think) on investor hopes of beaucoup profit, as Honeywell supplies plane parts to Boeing and Airbus. Depending on the numbers you look at, the stock now costs a bit less than 21 times (GAAP) earnings. Or it costs a bit more than 21 times trailing free cash flow (of $3.1 billion). Or even a bit less than 18 times the free cash flow Honeywell calculates for itself (excluding contributions to its own pension fund, and to the NARCO asbestos litigation trust fund) for 2012, and estimates it will generate again in 2013.

Any way you cut it, though, all of these valuations are too high. Honeywell earnings, analysts say, will only grow earnings at about 10% annually over the next five years. Even with a 2% dividend yield, that argues in favor of a low-teens valuation on the stock -- not high-teens to low-20s.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.