With legacy automaker Volkswagen (OTC:VWAGY) investing up to $5 billion in EV manufacturer Rivian Automotive (NASDAQ:RIVN), the matter seems obvious regarding the end beneficiaries. However, the surprise winner in the deal could end up being applied sciences giant Honeywell (NASDAQ:HON). Underlying the surprising event in the automotive sector is a decided pivot toward the middle-income consumer. On a related note, Honeywell offers technologies that are tied to public charging. Therefore, I am bullish on HON stock.
Breaking Down the Relevance for HON Stock
A topical examination of the investment doesn’t natively appear to support Honeywell. After all, it’s Rivian that’s receiving the influx of funding. For Volkswagen, the venture can support its long-term vision of moving into the EV arena. While the benefit to HON stock is not direct, it would arguably 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 could be injected in 2026 to support a joint technology venture aimed at developing electrical architecture and software solutions. So, where does HON stock fit into this narrative?
It comes down to the economic incentive. As TipRanks reporter Paul Hoffman stated, the EV sector has suffered stalled growth due to consumer concerns. Primarily, these anxieties stem from inflation and elevated borrowing costs. Yes, Rivian’s current product portfolio features expensive vehicles, with the cheapest model coming in at $71,900. That assumes that Rivian is targeting the upper-income demographic.
Even if that’s the case, that approach isn’t working. In the past year, RIVN stock fell by more than 19%. Since its public market debut, it has hemorrhaged about 86%. Therefore, Rivian must try something else, and it is.
In 2026, the company will launch its R2 model, which will start at $45,000. One year later, it will debut the R3, which industry publications estimate could start at $37,000. Obviously, Rivian believes that its future depends on middle-income consumers. Volkswagen’s investment will help achieve this endeavor.
However, what analysts appear to be forgetting about targeting different segments of the income spectrum is that each category comes with pros and cons. Marketing EVs to rich folks sounds great on paper. Yet, this approach suffers from the obstacle that there aren’t that many rich folks.
On the other end, middle-income buyers are more plentiful. Guess what? One of their problems is that they’ll need public charging, and that’s where Honeywell comes in.
Honeywell’s EV Charging Solutions May Profit Handsomely
As an industrial and applied sciences company, Honeywell offers numerous relevancies. Certainly, EV charging isn’t a make-or-break situation for HON stock. However, betting on pure-play EV infrastructure ideas may be problematic for many investors. That’s because all of them, to my knowledge, are small-capitalization enterprises — in other words, high risk, high reward.
With Honeywell, you’re betting on an established stalwart where one of its business units could see a significant boost. Specifically, if more companies follow suit with the Volkswagen-Rivian deal – that is, building EVs that largely focus on middle-income households – then demand for public charging networks may rise. 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 revealed that among the three core attributes that on-the-fence EV buyers needed to see before making the plunge to electric mobility, one of them was charging solutions in under 20 minutes.
That’s significant for two reasons. First, it implies that prospective buyers may not have access to home charging or that they will use their EVs extensively for work or to run errands. Second, the focus on a specific time frame implies that these people have few moments to waste on unnecessary frustrations.
Translation? Middle-income buyers need public charging solutions, and lots of them. That should be a net positive for HON stock.
Diving Into Honeywell’s Valuation
Currently, HON stock trades at a trailing-year sales multiple of 3.84x. That’s not exactly undervalued. While it’s difficult to properly classify Honeywell, it’s ultimately an industrial conglomerate. And the overall conglomerates sector runs an average revenue 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 up 5.6%. Further, in the following year, the top line may expand to $41.08 billion. That’s up 6.1% from projected 2024 sales. Therefore, HON stock is trading at 3.39x projected 2025 revenue.
While that’s not much of a discount, we must also consider that a focus on EV charging solutions could boost Honeywell’s business overall. With that in mind, the upper end of 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 Moderate Buy consensus rating based on 10 Buys, five Holds, and zero Sell ratings. The average HON stock price target is $227.07, implying 6.5% upside potential.
The Takeaway: EV Charging Roads Are Pointing to HON Stock
At first, Honeywell seems to have little to do with Volkswagen’s surprise investment in Rivian Automotive. However, one of the key messages behind the deal is a transitioning focus toward the middle-income consumer. If so, this dynamic translates to the need for greater public EV charging solutions. That might benefit Honeywell’s Building Controls unit, making HON stock a potentially attractive pickup.
