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Siemens AG (ADR) (SI), Honeywell International Inc. (HON): Here’s Why This German Giant Is No Longer a Good Option

Following the second profit warning this year, Siemens AG (ADR) (NYSE:SI) has ousted its CEO Peter Loscher and replaced him with the company’s CFO, Joe Kaeser. After watching how the company’s solar unit went down in flames, costing the company $1 billion in two years, Siemens AG (ADR) (NYSE:SI) will be shutting down the solar segment of the company altogether after being unable to find a buyer.

Siemens AG (ADR) (NYSE:SI)As mishaps, inclusive of a late delivery of high-speed trains for the German national railroad, and delays in completing offshore wind turbine projects affected the company’s already dwindling revenue, it is also on course to cut expenses by about $7.8 billion by the next year. Siemens AG (ADR) (NYSE:SI) is engaging in job cuts to the tune of 1,700 jobs in order to meet its target and as a side-effect; the company is running short on capacity.

The finances

So just how bad are things for one of the largest German employers? On a year-over-year basis, Q1’s gross profit was down 9.1% and for Q2, Siemens AG (ADR) (NYSE:SI) issued a press release stating that it would not be meeting its profit targets. In the latest quarter, the company’s revenue was down 6.66% and operating income was even worse, decreasing 35.83%.

Indicator Siemens Honeywell International
United Technologies
P/E TTM 14.7 21.1 19.2
Forward P/E 11.8 14.9 15.2
PEG Ratio 1.4 1.6 1.5
Revenue Growth (3 Yr. Avg) 0.7 6.8 3.3
Dividend Yield, % 2.64% 1.90% 2.00%
Current Price $111.19 $84.40 $107.06

Siemens AG (ADR) (NYSE:SI) has a P/E ratio of 14.1 at a time when industry average stands at 18, while the PEG ratio is at 1.4. It is currently closer to the top end of its 52-week range and has a market cap of $89.8 billion. While it offers an attractive 2.76% yield, organic growth has been scarcely present in the company as the EPS has been extremely volatile for the last six years.

In comparison, Honeywell International Inc. (NYSE:HON) and United Technologies Corporation (NYSE:UTX) are both overvalued compared to Siemens AG (ADR) (NYSE:SI) and also the industry average of 18.1. The forward P/E and PEG ratio also suggest overvaluation. However, unlike Siemens the two companies do not have to introduce job-cuts, shut down wind, solar, and lighting operations while suffering massive lag times on their orders.

In stark contrast to Siemens, Honeywell International Inc. (NYSE:HON)’s Q2 2013 earnings grew 13% as the company focused on boosting its margins to sustain profit growth as weaker economic expansion has slowed revenue gains. Honeywell International Inc. (NYSE:HON) counts the U.S. military, Boeing, and Airbus among its biggest customers, and has been cutting costs and improving productivity. Its revenue growth is expected to slow down further and does not warrant the high valuation.

Things are very different for United Technologies Corporation (NYSE:UTX) though. The company’s Q2 2013 earnings rose 17% as the company posted sales growth at most of its units. Furthermore, the company raised the lower end of its annual per-share earnings estimate by $0.15. United Technologies provides electrical power systems and aircraft wheels and brakes to Boeing, which is expecting a flurry of orders after The Paris Air show. Furthermore, as global demand and construction picks up, the company’s Otis line of elevators could be in for better times as well.

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