Honeywell International Inc. is evaluating the sale or spinoff of its aerospace unit, capitalizing on favorable conditions in the space-exploration and defense sectors, alongside increased capacity among civilian airlines.
The strategic review has garnered support from Elliott Management, a prominent shareholder activist known for its critical evaluations of corporate management.
Honeywell's stock (HON) surged 3.7% to reach a record $236 on Monday, surpassing its previous high of $234.18 set on August 11, 2021. This rise indicates Wall Street's confidence in the potential separation of Honeywell's aerospace division, which reported a 10% increase in organic sales in the third quarter, totaling nearly $4 billion, with anticipated growth in the mid-to-high single digits.
This announcement follows Honeywell's recent $17 billion partnership with Bombardier to enhance avionics, propulsion, and satellite communications technologies.
Elliott Management, which has invested $5 billion in Honeywell, believes that the aerospace unit's separation aligns with their strategy to unlock value. They noted that the outlook for aerospace suppliers is the brightest it has been in decades.
According to the International Air Transport Association, global airline revenues are expected to exceed $1 trillion for the first time next year, with a growth rate of 4.4% projected for 2025, following a 6.2% growth in 2024.
The global aerospace market is anticipated to grow at 7.8% annually, reaching $791.8 billion by 2034, up from $373.6 billion in 2024, as per Precedence Research.
Despite these promising trends, defense stocks, including Honeywell, have lagged behind broader market performance due to competition, supply chain challenges, and rising inflation-related costs. Honeywell's stock has risen 8.5% this year, compared to a 26.9% increase in the S&P 500.
As space exploration progresses, with companies like SpaceX planning more missions, Honeywell's potential aerospace separation may position it favorably in a rapidly evolving industry.