HomeMost PopularInvestingComparing Honeywell Stock and Travelers: Which is a Better Investment?

Comparing Honeywell Stock and Travelers: Which is a Better Investment?

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When it comes to choosing between Honeywell stock (NYSE: HON) and Travelers stock (NYSE: TRV), we believe that the insurance giant, Travelers, offers better prospects for investors. Despite being from different sectors, these companies have similar revenue bases and can be compared based on certain characteristics that suit an investment style. While larger profits can indicate greater market power, comparing P/S ratios may not be helpful in this case. Instead, we can evaluate their current multiples against historical ones to better gauge their valuations.

Although HON and TRV have had a Sharpe Ratio lower than that of the S&P 500 Index, the Trefis Reinforced Value portfolio has outperformed both of them. The Sharpe Ratio, which measures the return per unit of risk, highlights that high-performance portfolios can offer the best of both worlds.

In terms of stock returns, both HON and TRV have underperformed compared to the broader market. While HON has declined by 16% this year and TRV by 13%, the S&P 500 index has risen by 11%. However, there is more to the comparison, and to understand why TRV may outperform HON in the next three years, let’s analyze factors such as historical revenue growth, returns, and valuations.

1. Travelers’ Revenue Growth Is Better

  • Over the last three years, Travelers has achieved an average annual revenue growth rate of 5.4%, while Honeywell experienced a decline of 0.9%.
  • Honeywell’s aerospace revenues were affected by the pandemic, particularly due to the impact on the airline industry. On the other hand, Travelers has seen higher revenues in all three insurance segments – business insurance, bond & specialty insurance, and personal insurance.
  • Improved pricing and higher retention have boosted Travelers’ premium income in recent times.
  • In the past twelve months, Travelers has witnessed sales growth of 8.3%, while Honeywell’s revenue has grown by 4.9%.
  • Looking ahead, Travelers is expected to have faster revenue growth than Honeywell over the next three years.

2. Honeywell Is More Profitable

  • In terms of operating margin, Honeywell has maintained a slight lead over Travelers. However, Honeywell’s operating margin has slid slightly from 18.7% in 2019 to 18.1% in 2022, while Travelers’ operating margin declined from 11.0% to 10.0% during the same period.
  • In the past twelve months, Honeywell’s operating margin of 19.7% has outperformed Travelers’ 7.1%.
  • When it comes to financial risk, both companies are comparable. Honeywell has a lower debt-to-equity ratio (18% compared to 21% for Travelers), but Travelers has a significantly higher cash cushion (61% cash as a percentage of assets compared to 14% for Honeywell).

3. The Net of It All

Considering Travelers’ better revenue growth and cash cushion, and Honeywell’s higher profitability and better debt position, it seems that both companies have their strengths and weaknesses.

However, based on P/S ratios, we believe that Travelers will be a better investment over the next three years. Our analysis suggests an expected return of 10% for TRV compared to a 4% expected return for HON. Honeywell’s stock trades at a slightly lower multiple of revenues compared to its historical average, while Travelers’ stock trades at a discount to its historical average.

While Travelers may outperform Honeywell in the next three years, it’s also helpful to explore how Honeywell’s peers are performing. You can find other valuable comparisons for companies across various industries at Peer Comparisons.

Returns Summary

Returns Oct 2023 MTD [1] 2023 YTD [1] 2017-23 Total [2]
HON Return -3% -16% 62%
TRV Return 0% -13% 34%
S&P 500 Return -1% 11% 90%
Trefis Reinforced Value Portfolio -3% 19% 513%

[1] Month-to-date and year-to-date as of 10/6/2023
[2] Cumulative total returns since the end of 2016

Investors looking for market-beating portfolios can consider Trefis’s research and analysis. You can find more details about Honeywell and Travelers, including valuation ratios and price estimates, on the Trefis website.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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