Goldman Sachs: Honeywell Aerospace (HONA.US) Q3 performance exceeded expectations, but it will still take time to reverse the business situation and maintain a “neutral” rating

The Zhitong Finance App learned that Goldman Sachs released a research report to maintain a “neutral” rating for Honeywell Aerospace Inc. (HONA.US), with a target price of 190 US dollars. The bank pointed out that HONA's revenue for the third quarter of fiscal year 2026 and adjusted profit before interest and tax (EBIT) both exceeded market consensus, and free cash flow was higher than expected, but organic growth was still relatively slow, and supply chain constraints and corporate reinvestment put pressure on profit margins. Goldman Sachs believes that the company's efforts to reverse the operating situation may drive fundamentals to accelerate in the future, but better growth and profit margins may still take several quarters to appear.

According to financial reports, HONA's third-quarter revenue was US$4.644 billion, higher than the market consensus of US$4.570 billion, and higher than Goldman Sachs's previous forecast of US$4.555 billion; organic revenue increased 2% year over year. The adjusted EBIT was $1,161 billion, higher than the market consensus of $1,060 million and Goldman Sachs's forecast of $1,128 million. Free cash flow was $500 million, higher than the market consensus of $413 million.

However, Goldman Sachs also pointed out that HONA's adjusted net profit for the quarter was 703 million US dollars, slightly lower than its forecast of 707.8 million US dollars; adjusted earnings per share were 2.21 US dollars, which was 0.02 US dollars lower than Goldman Sachs' forecast of 2.23 US dollars.

By business, electronic solutions revenue was US$1,784 million, up 4.4% year on year, higher than Goldman Sachs forecast; operating profit of US$564 million, profit margin was 31.6%, up 170 basis points year on year, and higher than Goldman Sachs's forecast of 28.8%. Engine and power systems revenue was US$1,515 million, up 2.5% year on year, and US$25 million higher than Goldman Sachs forecast; however, operating profit of US$250 million and profit margin was 16.5%, down 370 basis points year on year, and lower than Goldman Sachs's forecast of 19.7%. Control system revenue was US$1,345 million, down 0.1% year on year, lower than Goldman Sachs forecast of US$0.1 billion; operating profit was US$382 million, profit margin 28.4%, up 50 basis points year on year. The overall adjusted operating margin for the segment was 25.0%, higher than Goldman Sachs's forecast of 24.8%, but down 40 basis points from 25.4% in the same period last year.

Looking at the terminal market, commercial original equipment (OE) revenue increased 7% year over year, organic growth of 8%, mainly driven by increased commercial air transport manufacturing rate and optional equipment sales growth; commercial aftermarket revenue increased 2% year over year, organic growth of 2%, mainly supported by basic demand; defense and aerospace revenue increased 1% year over year, organic growth of 1%, contributed by the acquisition of CAES and Civitanavi, but was offset by the decline in international sales and the end of a government project that was not restricted by aviation.

Supply chain bottlenecks are still a key variable, and profit margins are under pressure in the short term

Goldman Sachs emphasized in the report that HONA is still working to resolve supply chain constraints. The company said the situation of some suppliers improved during the quarter, and it is expected that supplier output will continue to rise from the fourth quarter of 2026 to 2027, but the production of restricted suppliers is still below the level required by HONA.

Goldman Sachs believes that at present, the company's revenue growth is relatively slow, while the company continues to reinvest in the business to solve supply chain challenges, which puts some pressure on profit margins. These efforts may drive fundamentals to gradually accelerate in the future, but better growth and profit margins may take several quarters.

Looking ahead, HONA updated some guidelines for fiscal year 2026: organic growth remained unchanged at 4%-5%; the EBIT after simulating independent caliber adjustments was US$4.375 billion to US$4.425 billion, the previous guidance was US$4.350 billion, and the market consensus was US$4.350 billion; the EPS after simulating independent caliber adjustments was US$7.85-800. The previous guidance was US$7.60-7.90, and the market consensus was US$7.69; the free cash flow for the second half of 2026 was US$1.2 billion to US$1.4 billion, and the previous guidance was US$1.2-1.4 billion. The previous guideline was US$1.2-1.4 billion. The previous guideline was US$1.2-1.4 billion. The previous guideline was US$1.2-1.4 billion. The previous guideline was US$1.2-1.4 billion. At $1.5 billion, the market consensus was $1.09 billion. The company stated that the midpoint of the EBIT and free cash flow guidance range remained unchanged throughout the fiscal year.

Goldman Sachs simultaneously adjusted its financial forecast for HONA: 2026E revenue was raised from US$18.249 billion to US$18.503 billion, 2027E was fine-tuned from US$19.436 billion to US$19.496 billion, and 2028E was lowered from US$20.875 billion to US$20.807 billion; EBIT forecasts were US$3,544 billion, US$4.218 billion, and US$4.710 billion, respectively; EPS forecasts were US$7.91, US$8.22, and US$9.52, respectively. The 2027E and 2028E are down from the previous $8.54 and $9.95. According to the new forecast, the corresponding price-earnings ratios for 2026-2028 will be 19.5 times, 18.8 times, and 16.2 times, respectively; net debt/EBITDA will be 2.8 times, 2.3 times, and 1.7 times, respectively.