Honeywell CEO Vimal Kapur showed investors the company is finally serious about remaking itself — so we’re upgrading the stock. On Tuesday, Honeywell unveiled plans to spin off its advanced materials division — a move that makes good on management’s promise to reshape the industrial conglomerate’s sprawling portfolio and focus on more profitable businesses. The stock reaction was rather muted — up more than 1% — when considering this is the news investors have been waiting for after several quarters of little revenue growth and lagging stock performance. Honeywell shares are down around 1.5% year-to-date compared to the S & P 500’s more than 20% gains. “This is what people should be buying,” Jim Cramer said Tuesday. When portfolio restrictions lift, the Club plans to buy more Honeywell if shares stay around current levels of $205 each. To that end, we’re upgrading the stock to our buy-equivalent 1 rating and reiterating our $225-per-share price target. Shares are only just above where they were after losing over 5% on July 25 when the company announced a more subdued outlook alongside better-than-expected quarterly earnings and revenue. Honeywell divesting a non-core business like advanced materials, which could be worth $10 billion as a standalone, will free up capital and allow management to focus the portfolio on its three targeted mega-trends: automation, the future of aviation, and the energy transition. Proceeds from the spin-off can go towards more strategic internal investments and/or acquisitions. That’s essential because Honeywell has been long-criticized for operating too many far-flung businesses, with certain subsegments dragging down its overall financial performance. The spin is expected to be tax-free and to close either late next year or early 2026. It’s an aggressive move by management, given that advanced materials make up roughly 10% of overall sales. But, it shouldn’t surprise anyone. The company previously said it wanted to divest as much as 10% of total revenues from businesses that don’t fit into those three megatrend buckets. As recently as last month, Kapur said at a conference that Honeywell’s portfolio “needs some active management if we are to be growth-oriented.” HON YTD mountain Honeywell International (HON) year-to-date performance Like the Club, Wall Street also seems optimistic about Tuesday’s announcement. “The planned spin of its Advanced Materials subsegment further aligns Honeywell’s portfolio across its three megatrend markets, and should modestly reduce Honeywell’s cyclicality and capital Intensity,” said TD Cowen analysts, who maintained a buy rating. “[These are] factors that may drive a modest upward re-rating to Honeywell’s stock.” Barclays argued that the “news is positive as it underscores that the board is energetically trying to improve the share price.” The analysts added, “We think this move will help to reduce the deep discount of Honeywell vs. its [sum-of-the-parts valuation], simplify the portfolio (which is a common investor critique of Honeywell), and focus a greater share of the company’s sales/earnings on its target megatrends.” To be sure, Honeywell has made strides to align with these trends already, including the acquisitions of Carrier Global ‘s residential and commercial security systems unit and Air Products ‘ liquefied natural gas process technology and equipment business . These fit under the automation and energy themes. “They said they wanted to reshuffle their portfolio,” Jim said Tuesday. “They are people of their word. Vimal Kapur is doing a very good job at this.” Kapur was promoted to CEO of Honeywell in June 2023. A year later, he became chairman, too. (Jim Cramer’s Charitable Trust is long HON. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
Sopa Images | Lightrocket | Getty Images
Honeywell CEO Vimal Kapur showed investors the company is finally serious about remaking itself — so we’re upgrading the stock.
