Honeywell: the breakup has been completed
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The breakup of the Honeywell industrial conglomerate into larger units is now complete. We would expect the separate units, by focusing on their respective areas—where each is a dominant player—to be able to improve their performance and thereby create value for investors. Following the latest quarterly earnings reports, our feelings are mixed: Honeywell Technologies and Solstice posted generally favorable results, but Honeywell Aerospace was a major disappointment. We see upside potential in every case relative to realistic valuations estimated based on peer group multiples, especially so at Honeywell Aerospace, although in this case it will likely take more time (and an improvement in performance) for the rerating to take effect.
Honeywell Technologies quarterly earnings
The company posted second quarter figures that exceeded expectations, with EPS coming in at $1.95 versus the expected $1.82, and revenue also delivered a positive surprise (5.19 billion vs. 5.02 billion). Orders rose 16% year-over-year, driven primarily by the process automation segment, bringing the backlog to $20 billion (roughly equivalent to one year’s revenue). Orders from the Middle East played a major role in this, thanks to which the growth in the backlog accelerated significantly during the quarter compared to previous periods (2–3%).
Reported revenue increased by 3% year-over-year, with organic growth of 4% (driven primarily by the building automation segment), while segment margins expanded by 100 basis points to 18%. Adjusted net income rose by 10%, and free cash flow quadrupled. The company expects $2 billion in free cash flow this year (which, according to its three-year plan, it aims to increase to over $3 billion—a yield of nearly 5% relative to market capitalization).
Furthermore, management has become more optimistic about the outlook, now expecting EPS of $8.05–$8.35 for the full year, up from the previous forecast of $7.90–$8.30.
Honeywell Aerospace quarterly earnings
The company’s quarterly earnings report was a major disappointment, which was the last one released while still being part of Honeywell and the first presented as an independent entity as well. Revenue came in at $4.52 billion, compared to the expected $4.61 billion, while adjusted EPS was $1.87, compared to $2.12. The 9% year-over-year growth in the backlog continues to paint a strong picture, driven by defense orders and secondary market parts sales.
Management sees problems in the supply chain and plans to make changes in this area, find new procurement channels and partners, and select them for longer-term collaborations. The goal is to boost production through these measures, as the current organic revenue growth rate of 5% (while no segment was able to deliver truly strong results, with the defense and aerospace division performing the weakest) and the 2% year-over-year decline in operating profit can be considered weak.
Investors were, so to speak, taken aback by the fact that management does not yet see any signs of improvement and has significantly revised downward its previous expectations for the full year 2026. They expect organic revenue growth of 4–5%, which is nearly half of the previous forecast of 7–9%; they now project EPS of $7.60–$7.90, falling short of the $8.68 expected by analysts. The stock price has already fallen significantly in response to the report, and so it can be considered attractively valued at current levels. However, there is currently no catalyst that could set it on a sustained upward trajectory (and it appears we will have to wait for this, perhaps even until the first half of next year).
Solstice quarterly earnings
Solstice had a strong second quarter, beating consensus estimates on revenue ($1.15 billion vs. the expected $1.08 billion), a trend that carried through to net income, which came in at $0.88, while consensus had forecast $0.77. It is no coincidence that, thanks to the improved figures, management raised its revenue forecast (4.13–4.19 billion, up from the previous 3.9–4.1 billion) and its EPS forecast (2.75–2.95 dollars, up from the previous 2.45–2.75 dollars) for the full year 2026. Since the analyst consensus was $4.08 billion in revenue and $2.67 in EPS, the company managed to deliver a major surprise even relative to expectations.
Annual earnings growth also paints a positive picture: thanks to exposures directly or indirectly linked to AI infrastructure development, revenue rose by 11% and net profit by 23%. In the refrigerants segment, demand from data centers is strengthening, with revenue growth of 13%; the nuclear business segment is also performing very strongly at 27%; and the electronic chemicals group is showing 15% growth with a gradually improving trend. As a result of a one-time outage due to plant maintenance work, both EBITDA and the EBITDA margin declined on a year-over-year basis, but a significant improvement is expected for the remainder of the year.
In early July, the company announced its intention to merge with industry peer Element Solutions (ESI), which, according to management, could have proven to be a significant opportunity with the potential to create value over time. However, the market did not respond favorably; the stock price fell by 30%, as investors presumably want to see and capitalize on organic growth opportunities at the recently spun-off company. Under pressure from major shareholders, the parties ultimately terminated the merger plan by mutual agreement at the end of August, but the stock price has not yet recovered from its earlier decline.
Valuation
For each of the three companies spun off from Honeywell, we see upside potential based on key metrics, whether viewed in a historical context or compared to their respective peer groups.
- Honeywell Aerospace (HONA) appears to have the greatest upside potential; the stock fell significantly following the spin-off, resulting in an upside potential of nearly 50% compared to our fair value estimate of $224 based on multiples.
- Solstice (SOLS) stock is similarly attractive, even though its EV/EBITDA ratio is higher than that of its peer group. However, we consider this to be justified (with a fair value estimate of $83) due to the company’s significant exposure to growth industries such as electronics and refrigerant production, which are also impacted by AI infrastructure investments, and the production of a key raw material for uranium enrichment.
- Honeywell Technologies (HON), which operates in the automation sector (industrial and building automation) and continues to hold a nearly 50% stake in Quantinuum—a quantum computing company that recently went public— has, according to our calculations, a 10% upside potential relative to a realistic valuation of $227, calculated based on multiples.
Investment story
- When we first began tracking Honeywell, it was still a classic industrial conglomerate, with key segments such as automation (building, industrial, process, and technology), aviation, as well as chemicals and materials production. In the summer of 2023, a new CEO joined the company, who—under pressure from a well-known activist investor (Elliott Investment) that had acquired a stake—began the company’s long-awaited breakup, which was completed by the summer of 2026. This was also the number one investment story, as it holds the promise of unlocking significant hidden value.
- First, on October 30, 2025, Solstice Advanced Materials—the specialty chemicals and materials segment—was spun off and listed on the stock exchange, with Honeywell’s shareholders receiving all of Solstice’s common stock. For every four shares they held, they received one new Solstice share, whose price rose by approximately 20% following the listing. Within the company’s revenue, refrigerant production accounts for the largest share (for air conditioners, heat pumps, and industrial cooling systems), but it also manufactures thermal insulation foams, industrial solvents and propellants, chemicals and polymers for the semiconductor industry, research and laboratory chemicals and the sole provider of the key input raw material used in uranium enrichment (uranium hexafluoride) in the United States. The company’s growth prospects are bolstered by the fact that sectors that directly or indirectly benefit from investments in AI infrastructure (refrigerants, nuclear exposure, and electronic chemicals, metals, and polymers) account for approximately 50% of its revenue.
- As far as the company's breakup was concerned, this was the smaller part; the spin-off of the larger aerospace division took place on June 29, 2026. Honeywell shareholders (who held shares as of June 15) received one Honeywell Aerospace share for every two Honeywell shares they owned. Honeywell Aerospace shares are now trading on the Nasdaq, currently 40% below their initial public offering price. In its first independently published report, the company significantly lowered its growth forecast for 2026, causing great disappointment. Investors had not anticipated growth at half the previous levels during a period otherwise characterized by strong industry trends. For now, this may also hold back the stock’s appreciation as no catalyst is in sight for the remainder of the year, but over time, exposure to the defense and space segments (41% of revenue) could help, as could the market for commercial aircraft parts (44%) —which is considered more cyclical— to deliver the projected annual average revenue growth of 6–8% and even more dynamic free cash flow growth (around 10%).
- The remaining company, Honeywell Technologies, now provides services exclusively related to automation through its three segments: Building Automation (the No. 1 player globally), Process Automation & Technology (one of the top 3 players globally), and Industrial Automation (one of the top 3 players globally). Amid these major spin-offs, there were also smaller asset sales; in April 2026, Productivity Solution and Services (PSS, a leading provider of mobile computers, barcode scanners, and printing solutions for the warehousing and logistics market) was sold to Brady Corp. in a $1.4 billion all-cash transaction. In addition, the company is selling its Workflow Solutions division to a private equity firm (for an undisclosed price). The transactions are set to close in the second half of the year. These cash inflows may also have supported the July 17 cash acquisition of Johnson Matthey (which develops catalysts and automation technologies for the refining, chemical, and renewable energy industries) for 1.33 billion pounds. The acquisition could help the company offer a more comprehensive value proposition to customers in the chemical, refining, and renewable energy markets. The goal is to achieve annual organic growth of 4–6% over a three-year period, accompanied by an expansion of operating margins (to 24%) and profit growth of over 10%, driven primarily by the building automation business.
- In addition to these activities, Honeywell Technologies continues to operate in the field of quantum computing. However, it no longer consolidates the relevant figures—which are currently primarily costs—into its financial statements. The reason for this is that Quantinuum has since gone public (it has been trading since June 4, 2026), raising $1.7 billion in capital for the company, which is valued at $15.6 billion, thereby reducing Honeywell Technologies’ stake to 48%.
- The past few months have been quite eventful for the company, following which it carried out a reverse stock split at the end of June. The number of shares, which stood at 634 million, is thus reduced to 317, and the share price doubled, but in fundamental terms, there is no change in the company’s value.
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