Honeywell exploring aerospace-unit sale during a boom time and its shareholder activist is pleased

MW Honeywell exploring aerospace-unit sale during a boom time and its shareholder activist is pleased

By Steve Gelsi

Honeywell draws support for a strategic review from Elliott management as airlines and defense sectors scale up

Fresh plans by Honeywell International Inc. to consider the sale or spinoff of its aerospace unit comes at a lucrative time both in the space-exploration and defense businesses, as well as a buildup in capacity by civilian air carriers.

Honeywell's $(HON)$ move also drew praise from one of the most high-profile shareholder activists, Elliott Management, a firm known for its tough assessments of company management.

Honeywell's stock rose 3.7% in premarket trading - a sign that Wall Street sees value in the move by Honeywell to potentially separate its aerospace business, which rang up a 10% increase in organic sales in the third quarter to just under $4 billion, with projected growth of in the mid-to-high single digits.

The move by Honeywell comes just a few days after it announced a $17 billion partnership with Bombardier (CA:BBD.B) to provide technology for avionics, propulsion and satellite-communications technologies.

Elliott Management, which has disclosed a $5 billion investment in Honeywell, said the conglomerate's potential separation of its aerospace business would fit a plan it laid out about four weeks ago to generate value.

"The outlook for aerospace suppliers appears brighter today than it has in decades," Elliott said last month in a letter to Honeywell that praised its aerospace business's operating profit margins as second only to Transdigm $(TDG)$ in the industry.

The globe's roughly 340 airlines will top $1 trillion in revenue for the first time next year with a growth rate of 4.4% in 2025, on top of a projected 6.2% pace of growth for full-year 2024, according to the International Air Transport Association (IATA).

The global aerospace market is projected to grow by 7.8% a year to $791.8 billion in 2034 from $373.6 billion in 2024, according to estimates from Precedence Research.

Despite the prospects, defense stocks such as Honeywell have been lagging behind the broad market, as they face competition, supply chain disruptions and rising costs of wages and materials due to inflation.

Honeywell's stock is up 8.5% so far this year, while the S&P 500 SPX has risen by 26.9%. Northrop Grumman Corp. $(NOC)$ has risen 2.5% this year and General Dynamics Corp. $(GD)$ is up just 1.3%. RTX Corp. $(RTX)$ (formerly Raytheon) is one exception, with its stock up about 40%.

Boeing Co.'s stock $(BA)$ is down 34.9% as it struggled with production issues around the safety of its planes such as the 737 MAX.

While stocks have been mixed at best, space exploration continues with companies such as Elon Musk's SpaceX planning more missions and other countries sending probes to the moon.

Elliott said last month that Honeywell's equity research analysts "have written at length about the potential benefits of a separation" of its aerospace unit.

-Steve Gelsi

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December 16, 2024 07:39 ET (12:39 GMT)

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