Honeywell's Enterprise Building Integrator is helping to make buildings smarter. Source: Honeywell.

The push to develop machine-to-machine communications is in its nascent stages; however, several companies are already leading the way in bringing these solutions to the market. For example, Honeywell International (NYSE:HON), a well-diversified industrials giant, is addressing the Internet-of-Things market with a multi-pronged approach -- providing solutions ranging from energy efficiency to worker safety. 

Smart buildings
Although smart devices are constantly emerging, the enthusiasm for making things "smart" isn't limited to phones and washing machines. City planners are integrating systems to make their cities smarter, while building managers are looking to reap the same benefits of machine-to-machine communication on a smaller scale. Honeywell is helping to achieve these goals through its Enterprise Building Integrator -- a software suite consisting of several solutions that efficiently streamline building systems.


Enterprise Building Integrator platform. Image source: Honeywell.

Let's look at its individual parts.

  • Honeywell's Building Manager is an automation solution that monitors and controls various building systems, such as HVAC, energy consumption, lighting, water, and electrical equipment.
  • The company's Energy Manager solution helps to collect and analyze data regarding energy consumption, thereby improving energy efficiency and reducing costs, which, according to the company, can account for as much as 25% of a building's total operational budget.
  • Addressing a building's security issues, the Security Manager solution "enables a building's safety, access, and security systems to be integrated into a single operator interface."
  • LifeSafety Manager monitors and controls fire and smoke detection systems.
  • Digital Video Manager provides analog and digital CCTV surveillance with video analytics, among other features.

The range of services Honeywell offers suggests a competitive advantage -- a valuable edge in a market that's bound to have many players. According to Navigant Research, global revenue for commercial building automation systems is expected to grow from $58.0 billion in 2013 to $91.9 billion in 2023. 

Getting smarter 
Honeywell's building automation solutions are a clear demonstration of its proficiency in the IoT, but it's not the only in-road the company has made in the market. The company is helping to improve energy efficiency and demand response from the utility market, with its Smart Grid Solutions, to the residential market, with its UtilityPRO smart thermostat.

The push to grab a greater piece of the smart thermostat market is not without its challenges, though. Honeywell faces formidable competition from Nest Labs, owned by Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), which released a third generation of its smart thermostat this past September. Nest Labs is aggressively pursuing partners with whom it can gain a greater presence among homeowners. According to Nest Labs, its Third Generation Nest Learning Thermostat will be available at 7,000 retail locations, from 25,000 Nest Pro installers, and through "energy and enterprise partners such as Southern Company, Direct Energy, SunEdison, Infinite Energy, Reliant, and ADT."

The UtiliyPRO smart thermostat. Source: Honeywell.

The company also has a number of smart-meter offerings that will become even larger following the $5.1 billion acquisition of Elster, which is scheduled to close in the first quarter of 2016. A global leader in metering technology, Elster has a portfolio that consists of smart and basic metering products and solutions for the gas, electricity, and water markets in residential, commercial, and industrial applications.

Honeywell Chairman and CEO Dave Cote recognized the long-term value in the acquisition in the company's press release. "We expect that energy efficiency initiatives and mandates and the increased need for natural resource management will drive meaningful and sustained growth for Honeywell in the metering segment," Cote said. Reporting sales of approximately $1.6 billion in 2014, Elster expects this number to grow to $1.8 billion for 2015, with operating margins near 20%. 

... and smarter
Clearly, Honeywell has a variety of products and solutions related to energy; however, its IoT reach extends even further. The company recently revealed a prototype of its Connected Worker solution at Intel's Internet of Things Insights Day. A product of Honeywell Industrial Safety, the Connected Worker solution monitors the individual for toxic gas exposure, breathing, heart rate, posture, and motion, providing real-time data on a cloud-based dashboard for plant managers and supervisors.

Carl Johnson, president of Honeywell Industrial Safety, has no misgivings about the potential in the solution, claiming that "[t]his is a major breakthrough for worker safety and productivity that will revolutionize the industrial workplace." If the solution is as effective as Johnson claims, the market potential is considerable -- industrial workers, first responders, and miners are just some of the individuals who could benefit.

How does this all measure up?
Honeywell's products and solutions for building automation and smart metering (as well as industrial safety) all belong in its automation and control solutions segment. As a whole, the segment is expected to grow about 2%, accounting for $14.1 billion in sales for 2015. Should the company meet this guidance, it would translate to a segment margin of approximately 16.4%. Though this would be an improvement of 120 basis points, it would lag the other two operating segments should they meet their guidance -- aerospace is expected to report a segment margin of 21.1%, an improvement of 240 basis points; the performance materials and technology segment is expected to report a segment margin of about 20.8%, an improvement of 300 basis points. For 2016, management has provided a neutral outlook on the automation and control solutions segment, citing slower conversion of its backlog. 

The takeaway
Honeywell offers investors a compelling approach to investing in the IoT. The company is mitigating its risk of pursuing IoT products and solutions by approaching the market from various angles, such as building automation, smart metering, and worker safety. Moving forward, keep an eye on the automation and control solutions segments as an indicator of the company's progress in the market. Growth may be slow for the next year or two, but this is a long-term play that requires some patience -- patience that may be rewarded in another way. In addition to providing the relative security of an industrials stalwart -- its stock is up over 110% over the past five years -- the company's 2% dividend yield can keep investors happy while the IoT story develops. 

Scott Levine has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool recommends Intel and Southern Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.