Honeywell Aerospace is poised to commence its public trading today, with TD Cowen initiating its coverage with a Hold rating. The firm has raised concerns about the company’s potential for profit leverage, indicating that it may fall behind its preferred aerospace competitors.
TD Cowen has set a price target of $250 for Honeywell Aerospace, cautioning investors about what it describes as modest profit growth relative to sales. The brokerage forecasts that the company’s adjusted operating profit will expand at a rate below 10%, with organic sales growth projected at approximately 8% through 2026-2027. This outlook suggests limited margin expansion and a stable share count moving forward.
With net debt currently at about 3.1 times EBITDA at the time of the spinoff, TD Cowen sees little scope for aggressive capital returns. Investors can expect only a modest dividend along with share buybacks that aim to offset dilution from equity compensation. The firm anticipates that any acquisitions will likely be small-scale “tuck-in” ventures rather than the transformative mergers and acquisitions that have historically contributed to growth in the aerospace sector.
“HONA’s operating profit gains are likely to exceed sales growth by a mere 1-2%, which is below the performance of other Buy-rated aerospace suppliers we cover,” the analysts at TD noted.
The anticipation surrounding Honeywell’s spinoff has generated excitement, and the stock is expected to make a noteworthy debut on the market today. This debut holds particular significance for investors in Honeywell International (HON), as shareholders have received one share of HONA for every two shares of HON they owned as part of the spinoff strategy.
In contrast to TD Cowen’s cautious view, RBC has taken a more optimistic approach, initiating coverage of HONA with a Buy rating and a higher price target of $300. This divergence in analyst sentiment reflects varying perceptions of Honeywell Aerospace’s future potential in the competitive aerospace industry.
