On Friday, Barclays (LON:BARC) maintained its Overweight rating on Honeywell International (NASDAQ:HON) shares with a stable price target of $252.00. The firm highlighted the recent agreement by Honeywell to sell its Personal Protective Equipment business to Odyssey Investment Partners for $1.325 billion, a transaction expected to close in the first half of 2025. This deal comes in slightly below earlier estimates that valued the business at $1.5 billion.
According to Barclays, this divestiture could dilute Honeywell's adjusted earnings per share by $0.10 to $0.15, prior to the redeployment of the net proceeds.
The analyst from Barclays expressed a keen interest in Honeywell's management's response to Elliott's proposal for spinning off the Aerospace division. This suggestion arrives at a time when Honeywell's stock performance has been underwhelming, contrasting with Aerospace peers who enjoy higher valuation multiples.
The firm's analysis suggests that if Aerospace were valued at a high 20 times price-to-earnings ratio, the remaining company (RemainCo) would be valued at 18 times, which seems modest compared to industry peers.
Honeywell's decision to divest its Personal Protective Equipment segment aligns with broader portfolio adjustments that may reduce the current valuation discount compared to Sum of the Parts (SoTP) calculations. The Barclays analyst noted that such measures could bring Honeywell's valuation closer to that of its peers in the Automation and Control Solutions (ACS) and Building Technologies (BT) sectors, which are currently trading at higher multiples.
The sale is part of Honeywell's ongoing strategic reevaluation and portfolio management, with the goal of optimizing its business mix and focusing on core growth areas. The completion of this divestment will further shape Honeywell's business structure and could influence its valuation and stock performance in the future.
In other recent news, Honeywell International Inc (NASDAQ:HON). has been the center of attention following significant investment activity and proposed structural changes.
Activist investor Elliott Management has acquired a stake exceeding $5 billion in Honeywell and is suggesting a split into two separate entities: Honeywell Aerospace and Honeywell Automation. Analyst firms BofA Securities and RBC Capital Markets have responded by raising their price targets for Honeywell to $240 and $253 respectively.
Elliott Management's proposal aligns with a broader trend in the sector where companies are simplifying their portfolios by dividing into more focused businesses. However, some analysts have expressed concerns about the potential implications of this division.
Despite operational challenges and a less optimistic outlook from Wolfe Research, which downgraded Honeywell's stock from Outperform to Peer Perform, Honeywell's third-quarter earnings report showed an 8% year-over-year increase in adjusted earnings per share, reaching $2.58.
In terms of organizational changes, Honeywell's CFO Greg Lewis (JO:LEWJ) is transitioning to Senior Vice President of Honeywell Accelerator, with Mike Stepniak stepping in as CFO in February 2025. The company completed four acquisitions in 2024, totaling over $9 billion, and plans to spin off its advanced materials division. These recent developments underscore Honeywell's strategic focus on future growth.
InvestingPro Insights
To complement Barclays' analysis of Honeywell International (NASDAQ:HON), recent data from InvestingPro provides additional context to the company's financial position and market performance. Honeywell's market capitalization stands at $149.19 billion, reflecting its significant presence in the Industrial Conglomerates industry. The company's P/E ratio of 25.97 suggests that investors are willing to pay a premium for its earnings, which aligns with Barclays' observation about potential valuation adjustments following strategic moves like the Personal Protective Equipment business divestiture.
InvestingPro Tips highlight Honeywell's strong dividend history, having raised its dividend for 14 consecutive years and maintained payments for 40 years. This demonstrates the company's commitment to shareholder returns, which could be an important factor for investors considering the stock's long-term potential. Additionally, Honeywell's liquid assets exceeding short-term obligations indicate a solid financial foundation, which may provide flexibility as the company navigates its portfolio restructuring.
The company's revenue growth of 3.96% over the last twelve months, coupled with an EBITDA growth of 5.18%, suggests steady operational performance. This growth, combined with Honeywell's prominent industry position, may support Barclays' Overweight rating and price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips on Honeywell, providing deeper insights into the company's financial health and market position.
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