Honeywell CEO Vimal Kapur has announced plans to spin off the company’s advanced materials division, following through on the promise to reshape the industrial conglomerate’s portfolio. This move is aimed at focusing on more profitable businesses and aligning with the company’s three targeted mega-trends: automation, the future of aviation, and the energy transition. The reaction from investors was somewhat muted, with shares only up around 1% despite this being the news shareholders have been waiting for after lackluster revenue growth. Honeywell shares are down 1.5% year-to-date, compared to the S&P 500’s 20% gains.
The spin-off of the advanced materials division, which could be worth $10 billion as a standalone entity, will free up capital and allow the company to focus on strategic internal investments and acquisitions. Honeywell has been criticized in the past for operating too many diverse businesses, with some subsegments impacting overall financial performance. The divestment is expected to be tax-free and close either late next year or early 2026. This move by management reflects their commitment to actively managing the company’s portfolio and focusing on growth-oriented strategies.
Wall Street analysts are optimistic about the announcement, with TD Cowen maintaining a buy rating and Barclays suggesting that the move could lead to an upward re-rating of Honeywell’s stock. The planned spin-off of the advanced materials subsegment aligns Honeywell’s portfolio with its target markets and may reduce its cyclicality and capital intensity. The company has already made strides in aligning with the targeted mega-trends through acquisitions in the automation and energy sectors. CEO Vimal Kapur, who took over in June 2023, has been praised for his proactive approach to reshaping the company’s portfolio.
The CNBC Investing Club, along with Jim Cramer, has given a buy-equivalent 1 rating to Honeywell’s stock and reiterated a price target of $225 per share. The Club plans to buy more shares if they remain around the current price levels. Honeywell’s stock has faced some volatility this year, with shares dipping over 5% in July when the company announced a more subdued outlook alongside better-than-expected quarterly earnings and revenue. The planned spin-off of the advanced materials division is seen as a positive step towards simplifying the company’s portfolio and focusing on its core business areas.
Overall, the market is responding positively to Honeywell’s decision to divest a non-core business and focus on its key growth areas. The company’s strategy to align with targeted mega-trends and streamline its portfolio is seen as a step in the right direction. CEO Vimal Kapur’s leadership has been commended for his commitment to reshaping the company and driving growth. Honeywell’s stock is expected to benefit from this strategic move, with potential for an upward re-rating and improved shareholder value. Investors are encouraged to consider the long-term potential of Honeywell as it continues on its path towards transformation and growth.
