Michael Huber 
Honeywell announced Thursday that it was done with the old industrial conglomerate model and will split into three standalone companies — focusing on aerospace, automation, and advanced materials. However, the market looked past Honeywell’s positive breakup news and better-than-expected quarterly results. Instead, investors sold down the stock roughly 5.5% on a disappointing 2025 guide. Revenue in the fourth quarter increased 6.9% year-over-year to $10.1 billion beating the LSEG compiled consensus estimate of $9.8 billion. Adjusted earnings per share fell 8% to $2.47 and beat the $2.32 consensus forecast. EPS was also above the high-end of management’s previously provided guidance. Earnings would have been $2.93 when excluding the company’s multiyear strategic agreement with Bombardier. Honeywell Why we own it: Honeywell is a provider of industrial technology solutions to companies in various industries. We appreciate its exposure to the aerospace industry as a parts supplier. The portfolio has, however, become a bit bloated. We think further upside will come as the company divests non-core businesses and focuses both internal investments and acquisition efforts around management’s three targeted mega-trends: automation, the future of aviation, and the energy transition. Competitors: Emerson Electric , RTX , 3M Weight in portfolio: 3.14% Most recent buy: April 10, 2024 Initiated: July 5, 2020 Bottom line The reaction to Honeywell’s breakup and 2025 forecast played out exactly like we thought. When the stock traded in the $220s and we trimmed the position down to one of the smallest in the portfolio in late January, we called out concerns about the company’s fundamentals. Last year was a rough one for Honeywell. The company revised lower its full-year outlook several times because it never saw the uplift in its automation business that it anticipated at the start of 2024. We didn’t expect a recovery anytime soon, which is why we called out that sales and earnings guidance would fall short of the consensus. Another reason why we sold ahead of the print was we assumed the breakup announcement was largely priced in based on several media reports. To be clear, Honeywell’s plan to separate into three companies is the right thing to do for shareholders. We have been calling for it for a long while and were glad activist investor group Elliott Management pushed it. The company clearly lost its way over the past few years, trailing other industrials in growth — and most importantly, stock performance. Breaking up is the best thing to do because each company will have a dedicated leadership team with more defined strategic goals and priorities. Based on the success of other aerospace-related breakups at GE and the old United Technologies, now RTX , this breakup should create value for shareholders. But it won’t happen overnight. The market isn’t giving Honeywell credit for the breakup news and buyers aren’t interested just yet because of how long the process will take to complete. Honeywell is targeting the previously announced advanced materials spinoff in late 2025 or early 2026, and Thursday confirmed separation of aerospace and automation to follow in the second half of 2026. That’s a long time away and as we know with Club name DuPont ‘s breakup, spin purgatory can be real and trying of patience. From where we stand, we are glad we sold most of our Honeywell position much higher and side-stepped some of this decline. With the bad news out of the way, we can revisit the stock at these lower prices. In all fairness, we still have outstanding concerns about the company’s fundamentals. The aerospace business is growing at a fast clip, but the warehouse automation business within the industrial automation unit has been horrible. The key thing is that the forecast management offered Thursday is humbler than where it stood last year. The company learned from its mistake of setting the bar too high. Honeywell was forced to cut numbers last year because it guided for a pick-up in its short-cycle business that never materialized. This year, management made clear its forecast does not assume a recovery in its short-cycle business. This is prudent and the way it should be done. Following a reset of expectations and management making good on what’s best for shareholders, we can get more constructive. That’s why Jim Cramer said on the Morning Meeting on Thursday that “at this price” the stock presents a good buying opportunity. We’re upgrading Honeywell to our buy-equivalent 1 rating . HON 1Y mountain Honeywell 1 year Guidance Honeywell is anticipating another soft year in 2025, expecting sales in the range of $39.6 billion to $40.6 billion, increasing 2% to 5% on an organic basis, or 1% to 4% excluding the Bombardier agreement. Segment margins are expected to increase by 60 basis points to 100 basis points from last year. Excluding Bombardier, margins are expected to be in the range of down 10 basis points to up 30 basis points The company is forecasting EPS of $10.10 to $10.50, which at a midpoint of $10.30 is well below the FactSet consensus estimate of $10.92. The company’s outlook assumes the company’s planned sale of its personal protective equipment business closes midyear. As for tariffs, Honeywell’s forecast does not include any potential impact from tariffs. The company explained on the call that tariffs on China are not material. The team sees tariffs on imports from Canada, if they happen, as non-material, too. Management, however, is trying to better understand tariffs on Mexico but said they would be manageable if they were to go into effect. (Jim Cramer’s Charitable Trust is long HON, DD. 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.
