Here's What Honeywell's Big Breakup Means to Investors

Core Viewpoint - Honeywell International is planning a breakup of its business segments, which is expected to unlock significant value for investors, with potential share prices projected to rise between 54% and 84% by the end of 2026 [2][3]. Honeywell's Breakup Plans - The company will spin off its advanced materials business by late 2025 or early 2026 and separate its automation and aerospace businesses in the second half of 2026 [2]. - Elliott Investment Management has advocated for this breakup, suggesting it could lead to a share price of $321 to$383 [2]. Rationale Behind the Breakup - The argument for the breakup is that Honeywell's businesses would perform better as independent entities rather than under a conglomerate structure, potentially leading to higher earnings and valuations [3]. - CEO Vimal Kapur stated that the decision is strategic, driven by the differing needs of the aerospace and automation sectors [4][5]. Valuation Insights - Honeywell's management believes that separating the businesses will create more growth momentum and value [5]. - Comparisons with peer companies indicate that Honeywell may be undervalued, but the extent of this undervaluation is less than some investors might expect [7][12]. Segment Performance - Honeywell Aerospace has a 26% segment margin, which is significantly lower than peers like TransDigm, which has a 53% EBITDA margin [8]. - Honeywell Automation faces challenges, with reported organic sales declines of 5% and 7% in the fourth quarter [11]. Investor Implications - While the breakup is seen as a positive move, the actual impact on valuation may not be as substantial as anticipated, and investors should focus on management's ability to improve earnings over time [12][13].