Honeywell International (NASDAQ: HON) delivered a stronger-than-expected third quarter, and analysts at RBC Capital Markets are now reassessing what the industrial giant's financial picture could look like by the end of 2026. The key takeaway from RBC's note: faster-than-expected cost cuts and better-than-guided growth could give Honeywell a cleaner setup heading into 2027.
Honeywell reported adjusted earnings of $2.27 per share, beating the $2.17 consensus estimate from FactSet. The company also posted 7% organic sales growth—a measure that strips out the effects of acquisitions, divestitures, and currency swings—which came in above Honeywell's own guidance of 4% to 6%. Segment profit margins also came in stronger than RBC had modeled.
Broad-based strength across divisions
RBC highlighted that the quarter's momentum wasn't confined to one part of the business. Process Automation and Technology improved, while Industrial Automation and Building Automation continued to deliver steady growth. That breadth matters because it suggests the beat wasn't a one-off from a single division, but rather a company-wide trend.
For everyday investors, it's worth understanding what organic growth means. When a company grows by buying other businesses, that's not considered organic. Organic growth comes from selling more of its own products and services. It's often seen as a truer measure of a company's underlying health because it isn't flattered by acquisitions or currency fluctuations.
The 'stranded cost' factor
The biggest swing factor, according to RBC, is costs. The firm now believes Honeywell can eliminate what it calls "stranded costs" by the end of 2026. Stranded costs are overhead expenses that remain after a company reshapes its business—think of it as the leftover administrative and operational costs that were tied to businesses that have been sold, closed, or restructured.
If Honeywell can clear those costs faster than expected, it would support profit margins and make its longer-term earnings targets look more achievable. RBC reiterated confidence in Honeywell's goal of $12 in earnings per share by 2029.
This kind of cost discipline is a common theme among large industrials that have gone through portfolio changes. Investors often watch for how quickly companies can shed legacy costs, because every dollar of stranded cost removed flows directly to the bottom line.
What it means for investors
RBC kept its outperform rating on Honeywell but nudged its price target down slightly to $269 from $270. That may seem odd given the upbeat tone, but it tells an important story about valuation.
A price target is essentially a broker's estimate of what a stock should be worth, typically calculated by multiplying expected future earnings by a valuation multiple—the price investors are willing to pay for each dollar of earnings. By talking up the earnings path while leaving the target nearly unchanged, RBC is signaling that it isn't expecting the stock's multiple to expand much anytime soon.
In plain terms: even if Honeywell hits its earnings goals, the stock's upside may be limited unless investors become willing to pay a higher price for those earnings. That raises the bar on execution. The bull case for Honeywell now leans more on the company proving it can complete its stranded-cost cleanup by end-2026 and sustain margin gains, rather than on investors quickly re-rating the shares higher just because the 2029 target sounds more credible.
For context, Honeywell has been reshaping its portfolio in recent years, and the market has been watching how that transformation plays out. The company's ability to hit its cost-cutting targets will be a key focus in upcoming quarters.
RBC's view also comes amid a broader backdrop of mixed economic signals. Recent data has shown US business growth cooling while price pressures persist, which complicates the Federal Reserve's path on interest rates. That environment matters for industrials like Honeywell, which are sensitive to the overall pace of economic activity.
Investors should also keep an eye on how Honeywell's performance compares with other industrial names. For instance, Infosys recently trimmed its growth outlook amid AI pricing pressure, highlighting that not all companies are seeing the same momentum.
Ultimately, RBC's note is a vote of confidence in Honeywell's operational execution, but it's not a ringing endorsement of the stock's valuation. For everyday investors, the takeaway is that Honeywell's earnings power is improving, but the market may already be pricing in much of that improvement. The real test will be whether the company can deliver on its cost-cutting promises and keep margins climbing into 2027.
