Welcome robot masters: Honeywell could gain as warehouse automation grows
Spencer Platt/Getty Images News


Warehouse workers have for years worried about automation and robots taking their jobs. And with the Covid-19 pandemic, a number of factories across the country have increased their reliance on technology, a trend that's likely to benefit tech-solutions providers like Honeywell (NASDAQ:HON).

Large companies, such as Nike (NYSE:NKE), NestlÃ© and Apple (NASDAQ:AAPL) have all publicly talked about the need to make manufacturing more efficient, aided in part by automation and robots. In a September interview with the Financial Times, Thomas Evans, robotics chief technology officer for Honeywell, said there was an "upward trend" throughout 2021, one that is likely to continue for "the years beyond." In the past year, Honeywell (HON) has boosted its warehouse automation revenue 14% to $2 billion.
Other tech-solutions providers, such as 3M (NYSE:MMM), General Electric (NYSE:GE), Siemens (OTCPK:SIEGY) and others may benefit as the costs to upgrade factories pale in comparison to the increase in efficiencies they provide, as well as the decrease in labor costs they generate.
In an August 2021 interview with Reuters, Livermore, California-based Westec Plastics rented three robots from Rapid Robotics, including one known as Melvin, which has helped the company operate 24 hours a day, replacing three people.
"Melvin [one of the robots] runs 24 hours a day, all three shifts, and that replaced three full operators," Westec Plastics' Tammy Barras told the news outlet. "And luckily, Melvin has not increased his pay rate. He doesn't ask for a raise."
According to Forbes, robot firms received more than $6.3 billion in venture capital funding for the 12 months ending in March, a surge of nearly 50%, as companies look to take advantage of the advancements made in robotics and mitigate their expenses. For example, Westec Plastics' Barras told Reuters that she was saving approximately $60,000 in labor costs from one robot.
In a note to investors earlier this month, Credit Suisse analyst John Walsh, who downgraded Honeywell's stock to neutral and lowered his price target to $226 a share, mostly on aerospace concerns, noted that Honeywell is continuing to benefit from its expanded presence in building technologies.
"Honeywell continues to benefit from a focus on space public health and safety with the company estimating Healthy Building orders of $400 [million] in 2021," Walsh wrote in a note, adding that the company "also expects to see tailwinds from the recently passed infrastructure bill."
UBS analyst Markus Mittermaier upgraded the stock to buy, noting the year-end sell-off provides investors an "attractive entry point."
Much of the organic growth will come from a recovery in aviation, but process automation - which includes warehouse automation and robot segments - are likely to see a "capital spending inflection." When coupled with the "strong secular growth in warehouse automation," roughly 9% of 9 million warehouses were automated by 2021, the "risk [and] reward at current levels is attractive given the expected inflection in 60% of its revenue base," Mittermaier added.
During the pandemic, e-commerce shopping has exploded, as evidenced by growth rates from the U.S. Department of Commerce. Starting in the first quarter of 2020, at the very early stages of the pandemic, e-commerce went from roughly 11% of total U.S. retail sales to 16% by the second-quarter. The percentage of total U.S. retail sales has slipped a bit, falling back to 12.4% of total sales as of the third-quarter 2021, but e-commerce continues to take market share from traditional in-store shopping.
As a result, retailers continue to invest in automation and robots, with warehouses spending roughly $36 billion in automation in 2021, up 20% year-over-year, the FT reported.
Amazon (NASDAQ:AMZN) is the 800-pound gorilla in warehouse automation, thanks to its 2012 purchase of Kiva Systems for $775 million. Despite that, other companies, notably Honeywell (HON), are also likely to see benefits, with Honeywell noting in a white paper that e-commerce sales grew an additional 50% during the COVID-19 pandemic.
"Automating responsibilities in the warehouse allows for robots to handle physically demanding tasks, while manual labor can be utilized for more advanced and fulfilling warehouse needs," Honeywell wrote.
It added: "Another benefit to adopting robotic solutions in your warehouse is quelling the rising cost of manual labor. This means that you will see a financial ROI much quicker than before."
Earlier this month, Honeywell (HON) announced that it was teaming up with Freyr Battery (NYSE:FREY)
to provide smart energy storage solutions for commercial and industrial customers through next-generation battery cells.