Shares of Boeing bounced 6.25% on Wednesday after crushing earnings estimates and guiding 2019 to another record year. Interestingly, the demand read through could be a major positive for Honeywell, which also saw its stock rise modestly in anticipation of earnings at week's end as optimism builds.
"Boeing's fourth quarter results and impressive 2019 guidance confirms our positive view on the strong growth within Aerospace industry," Jeff Marks, senior portfolio analyst for Action Alerts PLUS said. "Growth isn't just coming from Boeing, it is industry wide."
Aerospace in particular is a strong read through as Boeing's record earnings was driven significantly by defense and aerospace efforts that posted an impressive $6.11 billion in revenue, up about $900 million from 2017.
"Backlog at Defense, Space & Security was $57 billion, of which 30 percent represents orders from customers outside the U.S.," the company reported.
Jim Cramer, the AAP portfolio's manager, was even more pointed than Marks in his focus on Boeing's importance to Honeywell forecasting.
"Boeing the best read through there is for Honeywell," he commented on Wednesday. "Honeywell obviously has other divisions that may not be as strong, but I continue to believe that Honeywell is a good stock to own."
Honeywell has enjoyed a solid run from a grim Christmas Eve selloff that struck stocks across numerous sectors. The early year run is encouraging for investors that followed the company through two spinoffs in 2018 and a poor performance in the fourth quarter.
Adding to the comparison is Honeywell's strong cash position, that should bolster buybacks and the company's strong dividend that has doubled in the past five years.
To be sure, Honeywell is less insulated from trade tensions and macro movements than Boeing and remains a separate entity from its aerospace peer.
"We expect a strong relative quarter, with HON reporting EPS at the high end of 4Q guide and with organic growth holding up despite a more mixed macro," J.P. Morgan analyst Stephen Tusa wrote, expressing confidence in the company to overcome the challenge nonetheless. "HON remains our top pick with a solid fundamental outlook across businesses and higher quality portfolio post spins and we expect sector-plus organic growth trends to continue, with solid long cycle orders providing visibility into 2019."
He set an "Overweight" rating for shares with a $172 price target.
With Tusa's top pick status in mind and a bullish indication from Boeing, the signals suggest that the runway could be all clear for takeoff at Honeywell.