Here's Why Honeywell Stock Popped Higher Today
Key Points
Honeywell Aerospace and Honeywell Technologies both have exciting long-term growth prospects, which their management can focus on more as standalone companies.
A resurgent aerospace market, booming defense spending, and the need to invest in automation are driving growth at both companies.
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Honeywell International's (NASDAQ: HON) stock rose by 4.4% at 12:30 pm today on the news that its board of directors had formally approved the spinoff of Honeywell Aerospace.
Why Honeywell's breakup matters
This is the final stage in the company's breakup, and will create a focused aerospace and defense company, Honeywell Aerospace, with the legacy Honeywell International company remaining as Honeywell Technologies, a focused building, process, and industrial automation company. The split matters because it creates two more focused companies, each with its own risk profile, capital requirements, and industry cycles. For reference, Honeywell also recently had an initial public offering (IPO) for its quantum computing business, Quantinuum.
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Honeywell Aerospace
Both companies are well placed to do well. Honeywell Aerospace's electronics, controls, and power systems make it a leading player in the commercial aerospace and defense markets, and it's a beneficiary of a resurgent growth in commercial travel and a global ramp-up in defense spending driven by geopolitical conflict. Management recently held an investor day and called for compound annual sales growth of 6%-8% through 2030, with earnings growth above sales growth and cash flow above earnings growth.
Image source: Getty Images.
Honeywell Technologies
The automation company also has an exciting future. Its process automation solution benefits from increased spending on energy security and decarbonization. Building automation has strong underlying growth drivers, stemming from regulatory requirements that push building owners to invest in smart buildings to reduce emissions. Finally, industrial automation end demand is driven by the need to reshore manufacturing and compete with low-labor-cost countries by automating production.
Management also held an investor day recently and called for 4%-6% annual growth over the next three years, accompanied by more than 10% annual adjusted earnings per share (EPS).Both companies are set for solid growth prospects, which could accelerate as management works to add value as stand-alone companies.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Honeywell International. The Motley Fool has a disclosure policy.
