Honeywell International Inc. (NYSE:HON) maintained its usual track record of meeting or slightly beating earnings forecasts as it beat earnings estimates in its Q4 2017 report. Now, HON stock faces the challenge of returning to revenue growth and acquiring or spinning off divisions to maintain product offerings that remain relevant in today’s market.

While HON stock will not yield out-sized returns, the company should make the strategic moves to maintain a steady move upward.

The Facts Behind the HON Stock Earnings Beat

Earnings for Q4 2017 came in at $1.85-per-share, one penny ahead of consensus estimates. For 2017, that places annual earnings at $7.11-per-share. Earnings for 2016 were $6.20 per share, a 14.6% increase. Moreover, guidance for 2018 had also been raised. The company expects to earn $7.75-$8.00 per share this year. Earlier forecasts had guidance at $7.55-$7.80 per share. Revenues also exceeded expectations. HON brought in $10.843 billion for the quarter. Analysts had forecasted $10.689 billion.

Like many stocks, HON has enjoyed a steady move higher for the last nine years. HON stock has risen more than six-fold from its February 2009 low, trading near the $160-per-share range. The stock saw $45-per-share of that movement in the last 12 months alone. Despite the move upward, the price-to-earnings (P/E) ratio, like the dividend, sits near the S&P 500 average at 24.5.

HON Investors Should Watch the P/E Ratio

Investors should know that at no time in the last 10 years has the company’s P/E hit the mid-20s. That’s hardly expensive compared to stocks such as Amazon.com, Inc. (NASDAQ:AMZN) or Netflix, Inc. (NASDAQ:NFLX) which support multiples 10 or more times higher. Still, that P/E remains high for a slow-growth industrial stock.

Fortunately, the P/E for HON stands only slightly higher than most of its peers. It trades at a higher multiple than United Technologies Corporation (NYSE:UTX), General Electric Company (NYSE:GE) and Johnson Controls International plc Ordinary Share (NYSE:JCI). Still, Emerson Electric Co. (NYSE:EMR) supports a 28.6 P/E ratio, so HON has not become the most expensive stock in the group either.

HON also maintains a consistently growing dividend. HON has increased their dividend in all but one year in the last 10 years. The rate of increase in every instance was at least 10%. Today, stockholders receive an annual dividend of $2.98-per-share; the dividend yield of about 1.7% closely matches the S&P 500 average.

Expect Revenue Increases and Spinoffs in the Future

Interestingly, these increases happened despite revenues that remain little changed from 2013 levels. However, annual profit growth has averaged in the single-digits. These profits have been attributed to improved operating margins. The company reduced its cost of revenue by about 5% between 2013 and 2016. While revenues will have to rise at some point to sustain growth, it speaks to management’s ability to reduce costs. Fortunately for shareholders, analysts forecast earnings-per-share growth in the high single digits in future years.

In time, revenues should also increase. Margins have expanded in most divisions. Its aerospace division, the largest segment in the company, should also benefit from higher defense spending. Its Performance Materials and Technologies Divisions, which brings in over 20% of the company’s revenue, has seen double-digit revenue growth as well.

Moreover, the company has decided to spin off some divisions to unlock value. Both its home thermostat and electronic security business, as well as the automotive business within the aerospace division, will become separate companies. While these activities comprise about 18% of revenue, they’ll also create value and allow HON to enhance its focus where its long-term potential lies.

The Bottom Line on HON Stock

Altogether, HON continues making the required moves to maintain a steady growth path and produce products demanded by the market. Like in most quarters, HON stock beat earnings and revenue forecasts. It also achieved double-digit profit growth for 2017.

If estimates hold or rise, it will maintain mid-single-digit annual profit growth for years to come. No, Honeywell stock will not yield out-sized gains; however, if one wants a safe, long-term play with a growing dividend and modest profit growth, HON presents a good option.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.