Honeywell (HON) confirmed on Monday that it is mulling a separation of its aerospace business after an activist investor pushed for a breakup of one of the few remaining U.S. conglomerates. Honeywell stock led advancing stocks on the Dow Jones Industrial Average.
Honeywell Considers Aerospace Separation
In a news release, Honeywell said its board has made “significant progress” on a strategic portfolio review launched earlier this year by CEO Vimal Kapur. The GE Aerospace (GE) rival and Boeing (BA) supplier promised an update during its next quarterly earnings report, due at the end of January.
Activist firm Elliot Investment Management, which manages roughly $70 billion in assets, welcomed the news, saying it “represents the right course for Honeywell.”
“We look forward to the upcoming completion of the review and to supporting Honeywell as it implements the necessary steps to realize its full value,” the firm said in a statement
An earlier letter from Elliott addressed to Honeywell’s board of directors on Nov. 12 revealed it held a $5 billion stake in the company. The letter advised splitting Honeywell into two companies, separating the aerospace unit — the largest by sales and with the highest margins — from the automation, energy and sustainability solutions businesses.
In a note to clients on Tuesday, RBC Capital Markets analyst Deane Dray said the Honeywell announcement was not surprising. “Importantly, now that Honeywell’s board is officially considering its strategic options, this likely opens the door for discussions for other creative portfolio moves, potentially to include a Honeywell-GE Aerospace merger,” he added.
Other analysts have argued for such a combination to take on RTX (RTX), whose subsidiaries include Collins Aerospace and Pratt & Whitney.
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Analysts sized a standalone Honeywell aerospace business at $90 billion-$120 billion market value, including debt.
Early in 2024, investors rewarded the former General Electric for its own transformational breakup. In April, GE spun out GE Aerospace (GE) and GE Vernova (GEV), an energy play, as independent companies.
Among other 2024 spinoffs, fellow conglomerate 3M (MMM) spun out Solventum (SOLV), a health-care company.
Honeywell Stock Leads Dow Jones Higher
Shares popped 3.7% on the stock market today, leading advancing stocks on the Dow Jones Industrial Average. Honeywell stock jumped above buy range from an October breakout past 220.79.
GE stock, 3M, RTX and Solventum each moved up or down a fraction on Monday. GE Vernova gained 1.7%.
‘More Transformational Changes’
Under CEO Kapur, Honeywell has sought to streamline and simplify its business. General Electric followed a similar track, leading GE stock to soar ahead of the emergence of GE Aviation, which kept the GE ticker symbol.
Honeywell said in January that it would focus on growth opportunities in automation, aviation and energy, while shedding other businesses. CEO Kapur said on Monday that the company continues “evaluating more transformational changes.”
But Honeywell stock has lagged this year. That led Elliott Investment Management to swoop in, with the activist investor pushing for a breakup after taking a more than $5 billion position in the conglomerate.
Honeywell stock, which has increased its dividend for 14 consecutive years, offers a 1.95% yield. The Dow stock’s 12% gains so far this year owe almost entirely to a rally in the final quarter of 2024.
The company has made the dividend a priority in recent years. It’s targeting at least $25 billion toward dividends, acquisitions, capital expenditures and share buybacks through 2025, Kapur said in September, while announcing a hike in the HON stock dividend from $4.32 to $4.52 per share.
The former GE and Honeywell had tried to combine more than two decades ago. The merger attempt fell apart on anticompetitive grounds.
Please follow Aparna Narayanan on X @IBD_Aparna for more coverage.
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