Honeywell International (HON 0.43%) has weathered a period of transition that included a CEO change, pressure from activists, and a series of spinoffs, and has emerged as a more focused business with exposure to fast-growing sectors, including aerospace and industrial automation.

Investors have taken notice, with Honeywell shares up 22% year to date and 6 percentage points ahead of the S&P 500.

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So is it too late to get in, or can Honeywell shares climb higher? Here's a look at where the business stands, and the company's outlook, to try to determine whether Honeywell is a buy.

Steady through the transition

Honeywell management has been busy. Over the last year, the company has spun off its automotive and home products businesses as Garrett Motion and Resideo Technologies, respectively, and moved its headquarters from New Jersey to Charlotte, North Carolina. The reshaped portfolio is focused on aerospace and connected enterprises, applying software and Internet of Things tech to industrials by automating warehouses, factory buildings, and offices.

Through it all, Honeywell has remained a reliable performer. In July, the company reported second-quarter earnings $0.02 above expectations despite revenue falling short of the forecast. That was in part a result of aggressive buyback efforts, but better-than-expected operating margins, at 21.3%, also played a part. The aerospace segment has been the leader of late, growing organic sales 11% year over year, including 20% growth for defense and space.

A building with Honeywell's logo out front.

Image source: Honeywell International.

The margin improvement is in part due to the spinoff of Garrett and Resideo. The company said that about half of the 170-basis-point margin expansion in the quarter was related to the spins, with the rest stemming from operational improvements.

Honeywell generated adjusted free cash flow of $1.536 billion, a conversion rate of more than 100%. It also has a net-debt-to-EBITDA ratio below 1 at a time when many healthy industrial businesses are around 2, giving Honeywell one of the healthiest balance sheets in the sector.

Strength even in tough markets

Looking ahead, Honeywell expects full-year revenue to be up 4% to 6%, earnings per share up 8% to 10%, and margins to come in around 21%.

Those numbers could prove to be conservative. CFO Greg Lewis said during the post-earnings call with analysts that the company was cautious when developing its outlook, especially on shorter-cycle businesses, "as many of the macro signals, the China GDP, U.S.-China trade tensions, and Brexit, just to name a few, are still clouding the economic outlook."

That implies room to beat estimates if macro and geopolitical conditions improve, and in recent weeks Honeywell execs have sounded upbeat. In late August, CEO Darius Adamczyk told CNBC that while the current environment might be "slightly worse" than last year, "I would emphasize the word 'slightly,' and last year was a very strong economic year."

Adamczyk said he believes that if China and the U.S. were able to resolve their trade dispute, the economy would be poised for growth. "As much as there could be a risk of recession, there's also an opportunity for an acceleration in investment," he said.

Could Honeywell do a big deal?

Honeywell has historically eschewed large mergers and acquisitions in favor of smaller bolt-on deals that add capabilities to existing businesses. But the company hasn't shied away from large transactions completely. The current Honeywell was formed in 1999 via a $15 billion merger with AlliedSignal, and a year later it accepted a $21 billion offer to be acquired by Jack Welch's General Electric that was blocked by antitrust officials.

More recently, Honeywell pursued a deal with United Technologies, going public with an offer after private overtures were dismissed. (United Technologies eventually announced a three-way split and intends to merge its aerospace unit with Raytheon.)

A plane landing at night.

Image source: Getty Images.

The forces driving Honeywell to pursue UTC and which pushed UTC into the arms of Raytheon are still pressuring aerospace suppliers like Honeywell. On the commercial side, Boeing and Airbus have been rolling up parts of the supply chain and pressuring partners to bring down prices, making size and scale more important. In defense, the Pentagon is pushing contractors to shoulder more of the risk -- and spending on innovation -- when developing new technologies, a trend that favors bigger companies with deeper pockets.

I don't think Honeywell is under any immediate pressure to do a blockbuster deal and wouldn't advise investing based on acquisition expectations. Defense is an important business to Honeywell, but this is not a company you're likely to see on a list of top defense stocks.

But if UTC-Raytheon goes as planned, it's possible Honeywell will eventually be pressured to follow a similar playbook and either acquire a mid-tier defense contractor like L3 Harris Technologies, or spin out its aerospace division and combine it with a defense prime like Northrop Grumman or General Dynamics.

Is Honeywell a buy?

Honeywell isn't a cheap stock, trading at more than 17 times earnings, but the company appears well positioned to hold up fine even if the economy falls into recession. The aerospace unit grew its backlog by 10% in the most recent quarter, giving Honeywell ample long-cycle orders to keep revenue coming in even if the macro situation gets dicey.

The issue for the company is that with the spinoffs now complete, activist pressure in the rearview mirror, and large-scale merger deals seemingly a ways off, there aren't a lot of short-term catalysts to propel the stock upward. Honeywell seems more likely to slowly grind higher quarter by quarter based on steadily improving results and the growing impact of its software and high-tech businesses.

This isn't the most exciting company to invest in. But for investors seeking out a reliable blue chip industrial stock with a strong balance sheet and the ability to ride out the economic cycle, Honeywell is an attractive buy.