How Honeywell Earnings Could Send Shares to New Record Highs

Honeywell (HON -0.91%) will release its quarterly report on Friday, as the company seeks to prove that the optimism that investors have shown in bidding shares to all-time highs is justified. With promising conditions for many of its business segments, Honeywell earnings have the capacity to grow substantially both now and for years to come.

Honeywell makes a variety of products, ranging from aircraft engines, communications, safety, and lighting systems for planes of all sizes to environmental controls and brake systems for commercial and passenger vehicles. All of those areas have seen recent strength, and the company is doing its best to capitalize on its opportunity in all of them. Let's take an early look at what's been happening with Honeywell over the past quarter and what we're likely to see in its quarterly report.

Stats on Honeywell

Source: Yahoo! Finance.

How Honeywell earnings are vital to the stock's future
Analysts have had mixed views about Honeywell earnings in recent months, cutting a penny per share from their June-quarter estimates but adding that penny to their full-year 2013 expectations. The stock, though, has been unequivocally positive, rising 11% since mid-April.

Honeywell got the quarter started with strong results in its April earnings report, managing to boost its earnings by 17% despite sporting only the tiniest of revenue gains. More optimistically, the company increased its earnings guidance for the year, hiking the lower end of its previous range by a nickel per share, although it cut its sales expectations by $200 million, or about half a percent.

Yet the company continues to face macroeconomic uncertainties. Rival Johnson Controls (JCI -0.25%) reported extreme weakness in Europe in the first quarter, as automakers there have seen poor vehicle sales and generally weak industrial activity contribute to sluggish earnings growth. Honeywell has done its best to restructure its operations to turn its attention to higher-growth markets, but Europe could continue to hold back Honeywell from its full potential.

Arguably the biggest opportunity Honeywell has is in the aerospace industry. Boeing (BA 1.51%) expects industrywide demand for 35,000 aircraft over the next two decades, translating to revenue of $4.8 trillion. As a major supplier to Boeing and other aircraft manufacturers, Honeywell should be able to get its share of that pie.

Honeywell is also looking for growth beyond aerospace. In June, the company completed its acquisition of RAE Systems, which specializes in making systems and software to help detect gases and radiation. The move will boost Honeywell's existing lines of hand-held sensors and detection devices and help it serve its government, corporate, and public-safety clients with more comprehensive offerings.

In the Honeywell earnings report, look for management to comment on the recent investigation of a fire in a Boeing 787 Dreamliner aircraft. Investigators are looking at a Honeywell emergency-locator transmitter as a potential source of last week's fire, and given the notoriety of the Dreamliner's recent woes, any news will get a lot of attention. In the long run, though, Honeywell appears poised to keep growing no matter what comes of the investigation.

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