With the old automaker Volkswagen (OTC: VWAGY) investing up to $5 billion in EV maker Rivian Automotive (NASDAQ: RIVN), the issue seems clear regarding the ultimate beneficiaries. However, the surprise winner in the deal may end up being applied sciences giant Honeywell (NASDAQ: ZORI). Underlying the surprising event in the automotive sector is a firm orientation towards the middle-income consumer. On a related note, Honeywell offers technologies that are related to public charging. Therefore, I am positive on HON stock.
Importance breakdown for HON stock
A current examination of the investment does not appear to support Honeywell. After all, it is Rivian that is receiving the influx of funds. For Volkswagen, the venture could support its long-term vision to move into the EV arena. While the upside for HON stock isn’t straightforward, it would probably be a mistake to ignore it.
An initial investment of $1 billion will help get the ball rolling. Further, Volkswagen plans to invest $1 billion each in 2025 and 2026. Another $2 billion may be injected in 2026 to support a technology joint venture aimed at developing electrical architecture and software solutions. So where does HON stock fit into this narrative?
It is about the economic stimulus. As TipRanks reporter Paul Hoffman stated, the EV sector has seen stagnant growth due to consumer concerns. Mainly, these concerns stem from inflation and high borrowing costs. Yes, Rivian’s current product portfolio contains expensive vehicles, with the cheapest model costing $71,900. This assumes that Rivian is targeting the high-income demographic.
Even if it is, this approach is not working. In the past year, RIVN stock has fallen by more than 19%. Since its debut in the public market, it has hemorrhaged about 86%. Therefore, Rivian has to try something else, and it is.
In 2026, the company will launch its R2 model, which will start at $45,000. A year later, the R3 will debut, which industry publications estimate could start at $37,000. Of course, Rivian believes that its future depends on middle-income consumers. Volkswagen’s investment will help achieve this endeavour.
However, what analysts seem to be forgetting about targeting different segments of the income spectrum is that each category comes with pros and cons. Marketing electric vehicles to rich people sounds good on paper. However, this approach suffers from the drawback that there are not that many rich people.
On the other hand, middle-income buyers are more numerous. Find what? One of their problems is that they will need public charging, and that’s where Honeywell comes in.
Honeywell’s EV Charging Solutions may well benefit
As an industrial and applied sciences company, Honeywell offers a lot of value. Of course, electric vehicle charging is not a relaxed situation for HON stock. However, betting on simple EV infrastructure ideas can be problematic for many investors. That’s because they’re all, to my knowledge, small-cap ventures—in other words, high-risk, high-reward.
With Honeywell, you are betting on a stable company where one of its business units can have significant growth. In particular, if more companies follow the example of the Volkswagen-Rivian deal – that is, building electric vehicles that focus mainly on middle-income households – then demand for public charging networks could increase. That would be good news for Honeywell’s Building Controls unit, where it can market EV charging stations to commercial real estate managers.
A study by Boston Consulting Group found that among the top three attributes that on-the-fence EV buyers needed to see before jumping into electric mobility, one of them was charging solutions in less than 20 minutes.
This is important for two reasons. First, it implies that potential buyers may not have access to home charging or that they will be using their electric vehicles extensively for work or to run errands. Second, the focus on a specific time frame means that these people have few moments to waste on unnecessary frustrations.
The translation? Middle-income buyers need public charging solutions, and lots of them. This should be a net positive for HON stock.
Dive into Honeywell’s assessment
Currently, HON stock trades at a trailing year sales multiple of 3.84x. That’s not exactly an understatement. While it is difficult to properly classify Honeywell, it is, after all, an industrial conglomerate. And the overall conglomerate sector has an average earnings multiple of 1.64x.
However, it should also be noted that analysts believe that in Fiscal 2024, the company will post revenue of $38.7 billion. If so, that would be 5.6%. Further, in the coming year, the top line may expand to $41.08 billion. That’s 6.1% more than forecast sales for 2024. HON stock is therefore trading at 3.39x forecast 2025 earnings.
While that’s not much of a discount, we should also note that a focus on electric vehicle charging solutions could boost Honeywell’s business overall. With that in mind, the latest sales estimates – $39.05 billion in 2024 and $41.65 billion in 2025 – could be on the table.
Is Honeywell Stock a Buy, According to Analysts?
Turning to Wall Street, HON stock has a consensus rating of Average Buy based on ratings of 10 buys, five holds and zero sells. The average price target on HON stock is $227.07, implying 6.5% upside potential.
The Take: Electric vehicle charging lanes are headed for HON stock
At first glance, Honeywell appears to have little to do with Volkswagen’s sudden investment in Rivian Automotive. However, one of the key messages behind the deal is a transitioning focus to the middle-income consumer. If so, this dynamic translates into a need for greater public electric vehicle charging solutions. That could benefit Honeywell’s Building Controls unit, making HON stock a potentially attractive pick.
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