Honeywell Is Trying to Follow in GE's Footsteps. So Far, Investors Don't Like It.

Core Viewpoint - Honeywell International plans to break up into three stand-alone publicly traded entities, but its stock has underperformed the industrial sector despite this move [1][2][5]. Group 1: Reasons for Breakup - Honeywell's growth has stagnated, with revenue and earnings growth being poor, leading to a lack of investor confidence [5][15]. - The company has faced criticism for its conglomerate structure, which is seen as a hindrance to innovation and shareholder value, similar to the issues faced by General Electric [8][15]. - Activist investor Elliott Investment Management has advocated for the breakup, arguing it could unlock value and enhance growth opportunities [8][9]. Group 2: New Business Structure - Post-breakup, Honeywell will reorganize into three new companies: Advanced Materials, Honeywell Aerospace, and Honeywell Automation [10][11][12]. - Advanced Materials is projected to generate about $4 billion in revenue, while Honeywell Aerospace is expected to bring in around$15 billion [10][11]. - Honeywell Automation, with approximately $18 billion in revenue, will focus on digital transformation and industrial autonomy [12][14]. Group 3: Financial Performance and Outlook - Honeywell's sales and operating income grew by only 5% in 2024, with a projected adjusted EPS growth of just 2% to 6% for 2025 [5][16]. - The company has a history of stock buybacks, which has led to faster EPS growth compared to operating income, but overall results remain disappointing [7][18]. - Honeywell's current valuation reflects a forward adjusted price-to-earnings ratio of around 20, which may be attractive if the company can return to growth [18]. Group 4: Investment Considerations - Honeywell offers an attractive dividend yield of 2.2%, which is above the S&P 500 average [17]. - Investors are advised to consider the potential for innovation and growth post-breakup, but should also be cautious as the spin-off may not guarantee immediate shareholder value creation [19][21]. - A wait-and-see approach is suggested, with the option to invest in specific entities after the breakup [20].