Our rating, price target and outlook for newly spun off Honeywell Aerospace
C
CNBC Finance
6 min read
Honeywell has officially completed the spin-off of its aerospace business, with shareholders receiving one share of the new publicly traded company for every two Honeywell shares. So what exactly do investors now own, and is it worth keeping? Let's start with the basics: Honeywell Aerospace designs and manufactures the critical components that enable planes to fly, navigate, and operate safely. Think cockpit displays, autopilot, landing and braking systems, among many others, along with technology and software for the defense and space industries. It isn't a pure-play aircraft maker like Boeing or Airbus . Honeywell determined this fast-growing business "had very different strategies compared to the other businesses, very different needs, very different demand profiles," Honeywell Aerospace CEO Jim Currier told CNBC Monday morning. "And so, an ability to invest, as opposed to doing it across multiple businesses that have disparate strategies and needs, and being able to focus that 100% as a pure-play, is a tremendous value unlock." Priority No. 1 is strengthening the supply chain, Currier said, which saw severe disruptions during the pandemic. The company has a record backlog â worth roughly $19 billion â which means every improvement to speed up delivery times should translate into earnings growth. The company doesn't have a problem with demand for its products, but with supply. For fiscal year 2025, ended Dec. 31, the unit delivered sales of $17.4 billion, 12% organic growth, and $4.3 billion in adjusted earnings before interest, taxes, and depreciation (EBITDA). Priority No. 2 is making strategic deals that align with the portfolio and help strengthen the company's top-line growth potential, either by opening new adjacent markets or capturing more of existing ones. Both of these strategic objectives, Currier said, are easier to execute as a standalone company. He added that there is significant diversification across industry end markets and within Aerospace's own portfolio, which will reduce volatility in its results. The new management team forecasts 6% to 8% annual organic top-line growth for 2025 to 2030, with adjusted EBIT (earnings before income and taxes) growing faster and free cash flow growing even faster than EBIT. The strategy to deliver on these forecasts includes executing organic initiatives (more efficient, secure supply chain, cost savings), identifying attractive inorganic opportunities (strategic mergers and acquisitions), and returning cash to shareholders via dividends and opportunistic stock buybacks. Honeywell Aerospace serves 3 key end markets: The largest end market is the commercial aftermarket â products used to upgrade and maintain aging fleets. The end market accounted for 44% of FY25 sales. As outlined at the company's investor day on June 3, 2026, management expects this to grow at a mid- to high-single-digit compound annual growth rate (CAGR) from 2025 to 2030. Moreover, the team expects air travel to increase by about 4% over that period, as general population growth drives expansion of the middle class and urbanization. The Defense and space business accounts for 41% of FY25 sales and is the second-largest end-market opportunity. Management forecasts growth in the mid-single-digit range from 2025 to 2030 as international defense spending increases, militaries around the world seek to modernize and rearm, and the focus on missiles, fighters, unmanned systems, and space intensifies. Commercial original equipment makes up 15% of FY25 sales. Management sees this end market growing at a mid- to high-single-digit rate from 2025 to 2030, driven in large part by 7% growth in aircraft deliveries. Operations are also divided into three key segments: Electronic solutions (39% of FY25 sales), which include sales for avionics equipment, navigation and sensor products, electromagnetic defense solutions, and space-related revenues. The bulk of FY25 revenues in this segment came from defense and space, followed by the commercial aftermarket. Engines and power systems (31% of FY25 sales), where engine and power system sales are recorded. Most FY25 sales came from the commercial aftermarket, followed by defense and space, with sales only slightly higher than those from commercial original equipment. Control systems (30% of FY25 sales), including air and thermal control solutions such as cooling, cabin pressure, and air-cycling systems, and motion-control offerings such as actuation systems, engine control solutions, and braking systems. FY25 sales were led by commercial aftermarket, defense, and space. As we can see, this is clearly a highly streamlined business. The pure-play nature is certainly beneficial to the stock's multiple as it stands to remove the "conglomerate discount" which investors tend to apply to companies that operate in separate, unrelated industries â either due to a lack of achievable cost savings or because one segment always seems to be out of favor given the diversity of end market exposure. Fundamentally, it also offers advantages in research and development that will support future earnings growth. Because all three segments are now so closely intertwined, the company can invest in breakthrough aerospace industry solutions that sell into all three of the adjacent end markets, which also have significant overlap. The team's motto for R & D is "develop once, deploy everywhere." The result should be accelerated development times, leading to faster time-to-market for products. The segment alignment also means that R & D investments benefit from a shared supply chain and manufacturing base. Honeywell doesn't have to work to strengthen three separate supply chains for each segment; rather, it can invest for the benefit of the entire company at once. Asked about where Honeywell's edge is relative to competitors like Raytheon and GE Aerospace , Currier highlighted the diversification of both Honeywell Aerospace's offerings and the markets it targets. Another differentiator, Currier said, is the collaborative way the commercial segment and defense space interact. For example, Honeywell can invest in commercial solutions, where the opportunity is larger, and then leverage those investments and learnings to develop solutions for the defense sector without the need to double up on R & D spend. Honeywell Aerospace currently trades at about 23.1 times FactSet forward earnings estimates. That compares to 24.7 times for Raytheon and about 43.6 times for GE Aerospace. So, in addition to earnings growth, we would expect multiple expansion to drive the stock as the Street's confidence in the team's ability to execute and meet financial targets increases. Bottom line: with the spin-off complete, it's on the management team to execute. Given the robust backlog, streamlined operations, and high demand for its products, we see plenty of upside in our newest position. As a result, we are initiating coverage with a 1 rating and a price target of $285. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) 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. 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