Industrial conglomerate Honeywell (NYSE:HON) kicked off its first quarter in 2012 and reported steady sales and profit growth. Its operations have spent a few years in recovery mode, but it appears they are set for a sustained period of respectable top line expansion that management should be able to leverage into double-digit annual profit growth. Combined with a reasonable valuation, the stock is worth a close look.

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First Quarter Recap
Sales rose 7% to $9.3 billion, 6% of which was attributed to organic growth. Trends by division were primarily positive, with growth in the aerospace (major competitor is United Technologies (NYSE:UTX)), automation and control (United Tech, Johnson Controls (NYSE:JCI)), and performance materials (DuPont (NYSE:DD)) segment. The only laggard was transportation systems (BorgWarner (NYSE:BWA)), which reported a slight top-line decline.

Operating income increased in every division, though transportation reported a very slight 1.7% improvement. Total segment profits advanced 12.3% to $1.4 billion. Subtracting out corporate overhead costs and a lower level of one-time charges, pre-tax income jumped 18.6% to $1.1 billion. Net income improved 16.7% to $823 million, or $1.04 per diluted share.

SEE: Understanding The Income Statement

Outlook and Valuation
For the full year, Honeywell expects sales growth between 4 and 6% and total sales as high as $38.6 billion. It projects earnings growth in a range of 7 and 12% and profits as high as $4.45 per share. Based off the current share price of just below $60 per share, this works out to a forward P/E of 12, if it hits the high end of its guidance. This is slightly below the market average of 13.8 and quite a bit below Honeywell's average earnings multiple of about 17 over the past five years.

The Bottom Line
Honeywell currently sports a dividend yield of 2.5%. Its operations should be capable of growing earnings in the high single digits to low double-digits and the bottom line will finally exceed 2008 levels, just as the credit crisis and ensuing global recession were peaking. Overall, the company offers a decent combination of growth, dividend income, and a reasonable valuation. It is also considerably smaller than global rivals including United Tech and General Electric (NYSE:GE), which should make organic growth less of an uphill battle. It could also make any future acquisitions more meaningful, versus these rivals.

SEE: 5 Must-Have Metrics For Value Investors

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Tickers in this Article: HON, GE, UTX, JCI, DD, BWA

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