Honeywell International (HON) stock is the best Dow Jones stock Tuesday after activist investor Elliott Investment Management announced it has built a stake in the industrial conglomerate worth more than $5 billion. The activist investor also said it will push for a breakup of HON.
"The conglomerate structure that once suited Honeywell no longer does, and the time has come to embrace simplification," Elliott said in a letter to Honeywell. It believes Honeywell should separate into two standalone companies – Honeywell Aerospace and Honeywell Automation.
"As independent entities, Honeywell Aerospace and Honeywell Automation would benefit from simplified strategies, focused management, improved capital allocation, better operational performance, enhanced oversight, and numerous other benefits now enjoyed by dozens of large businesses that have moved on from the conglomerate structure," Elliott said.
If Honeywell were to do this separation, Elliott believes it could result in potential upside of 51% to 75% in the industrial stock over the next two years.
"Over the past five years in particular, Honeywell's share price has dramatically underperformed both its peers and the broader market," Elliott said. "The unfortunate result is that Honeywell's cumulative total shareholder return has underperformed benchmarks across virtually all time periods over the past ten years."
Is Honeywell stock a buy, sell or hold?
Honeywell has lagged the broad market in 2024, up roughly 11% on a price basis vs the S&P 500's 25% gain. Still, Wall Street remains bullish on the blue chip stock. According to S&P Global Market Intelligence, the consensus recommendation among the 26 covering analysts it tracks is a Buy.
Speaking for the bulls is CFRA Research analyst Jonathan Sakraida, who maintained a Buy rating on HON following news of Elliott's stake.
"CFRA fully supports an accelerated portfolio transformation as HON is well behind other industrial peers in portfolio optimization that has created significant value for shareholders," Sakraida says. These peers include 3M (MMM) and General Electric (GE), now GE Aerospace following its March split, which have seen strong returns following their spinoffs, he adds.
"A leaner operating model built around secular growth tailwinds (e.g., automation, aviation, and clean energy) should command a higher multiple, in our view," Sakraida concludes.
