Stock Analysis on Net
Stock Analysis on Net

Honeywell International Inc. (NASDAQ:HON)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Honeywell International Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.72%
01 FCFF0 5,625
1 FCFF1 5,996 = 5,625 × (1 + 6.61%) 5,319
2 FCFF2 6,429 = 5,996 × (1 + 7.22%) 5,060
3 FCFF3 6,933 = 6,429 × (1 + 7.83%) 4,840
4 FCFF4 7,518 = 6,933 × (1 + 8.44%) 4,656
5 FCFF5 8,198 = 7,518 × (1 + 9.05%) 4,504
5 Terminal value (TV5) 243,613 = 8,198 × (1 + 9.05%) ÷ (12.72% – 9.05%) 133,849
Intrinsic value of Honeywell International Inc. capital 158,229
Less: Debt (fair value) 29,776
Intrinsic value of Honeywell International Inc. common stock 128,453
 
Intrinsic value of Honeywell International Inc. common stock (per share) $197.64
Current share price $211.35

Based on: 10-K (reporting date: 2024-12-31).

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Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Honeywell International Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 137,360 0.82 14.84%
Debt (fair value) 29,776 0.18 2.96% = 3.75% × (1 – 20.98%)

Based on: 10-K (reporting date: 2024-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 649,918,551 × $211.35
= $137,360,285,753.85

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (20.40% + 20.80% + 22.10% + 22.50% + 19.10%) ÷ 5
= 20.98%

WACC = 12.72%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Honeywell International Inc., PRAT model

Microsoft Excel
Average Dec 31, 2024 Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020
Selected Financial Data (US$ in millions)
Interest and other financial charges 1,058 765 414 343 359
Net income attributable to Honeywell 5,705 5,658 4,966 5,542 4,779
 
Effective income tax rate (EITR)1 20.40% 20.80% 22.10% 22.50% 19.10%
 
Interest and other financial charges, after tax2 842 606 323 266 290
Add: Dividends on common stock 2,849 2,772 2,700 2,620 2,567
Interest expense (after tax) and dividends 3,691 3,378 3,023 2,886 2,857
 
EBIT(1 – EITR)3 6,547 6,264 5,289 5,808 5,069
 
Commercial paper and other short-term borrowings 4,273 2,085 2,717 3,542 3,597
Current maturities of long-term debt 1,347 1,796 1,730 1,803 2,445
Long-term debt, excluding current maturities 25,479 16,562 15,123 14,254 16,342
Total Honeywell shareowners’ equity 18,619 15,856 16,697 18,569 17,549
Total capital 49,718 36,299 36,267 38,168 39,933
Financial Ratios
Retention rate (RR)4 0.44 0.46 0.43 0.50 0.44
Return on invested capital (ROIC)5 13.17% 17.26% 14.58% 15.22% 12.69%
Averages
RR 0.45
ROIC 14.58%
 
FCFF growth rate (g)6 6.61%

Based on: 10-K (reporting date: 2024-12-31), 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31).

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2024 Calculations

2 Interest and other financial charges, after tax = Interest and other financial charges × (1 – EITR)
= 1,058 × (1 – 20.40%)
= 842

3 EBIT(1 – EITR) = Net income attributable to Honeywell + Interest and other financial charges, after tax
= 5,705 + 842
= 6,547

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [6,547 – 3,691] ÷ 6,547
= 0.44

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 6,547 ÷ 49,718
= 13.17%

6 g = RR × ROIC
= 0.45 × 14.58%
= 6.61%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (167,136 × 12.72% – 5,625) ÷ (167,136 + 5,625)
= 9.05%

where:

Total capital, fair value0 = current fair value of Honeywell International Inc. debt and equity (US$ in millions)
FCFF0 = the last year Honeywell International Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Honeywell International Inc. capital

FCFF growth rate (g) forecast

Honeywell International Inc., H-model

Microsoft Excel
Year Value gt
1 g1 6.61%
2 g2 7.22%
3 g3 7.83%
4 g4 8.44%
5 and thereafter g5 9.05%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 6.61% + (9.05% – 6.61%) × (2 – 1) ÷ (5 – 1)
= 7.22%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 6.61% + (9.05% – 6.61%) × (3 – 1) ÷ (5 – 1)
= 7.83%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 6.61% + (9.05% – 6.61%) × (4 – 1) ÷ (5 – 1)
= 8.44%