Wall Street analysts downgrade Honeywell. We think they’re making a mistake.

by Robert Frost

October 10, 2024

in Industries

Wall Street analysts downgrade Honeywell. We think they’re making a mistake.

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Honeywell stock received a rare downgrade from JPMorgan on Thursday. It’s the first time in more than a decade that analysts at the firm lowered their rating. The news JPMorgan cut Honeywell to neutral from buy, citing concerns about its newly announced materials spin-off . Shares of Honeywell were down roughly 0.6% after the call. “After almost 15 years recommending Honeywell, despite new management that we believe is doing the right things for the long term, we are moving to the sidelines, mostly due to the spin that appears dilutive, resulting in another year that lacks clarity on the forward earnings curve,” the analysts wrote in a research note. JPMorgan did raise its price target on Honeywell to $235 per share from $225, implying nearly 10% upside from Wednesday’s close. But the hike was part of the “rolling forward” of the analysts’ target multiples and PTs. JPMorgan also increased its price targets on fellow industrial-focused Club names Eaton, Dover and DuPont . On Wednesday, Honeywell CEO Vimal Kapur told CNBC that the spin of its advanced material division positions the company for a “better fresh cash flow with a similar margin rate.” He added: “We cannot deliver a strong growth momentum if our portfolio is not right.” Big picture The commentary comes against a solid backdrop for industrials in 2024. While performing similarly to the S & P 500 broadly, there has been a slew of sector tailwinds. Increased investments into data center buildouts because of the generative artificial intelligence craze have been a big one. That’s good news for Eaton, DuPont and Dover. Megatrends like the clean energy transition present upside as well for names like Honeywell and Club name Linde. Bottom line We disagree with JPMorgan’s Honeywell call. After the company unveiled its spin-off plans Tuesday, we upgraded the stock to our buy-equivalent 1 rating . It was the news we were waiting for after several quarters of little revenue growth and a lagging share performance. It signals that Kapur is finally serious about reshaping its sprawling portfolio of non-core businesses. “They said they wanted to reshuffle their portfolio,” Jim Cramer said Tuesday. “They are people of their word. Vimal Kapur is doing a very good job at this.” (Jim Cramer’s Charitable Trust is long HON, DOV, DD, ETN, LIN. See here for a full list of the stocks.) 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. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Honeywell International Inc. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York.

Michael Nagle | Bloomberg | Getty Images

Honeywell stock received a rare downgrade from JPMorgan on Thursday. It’s the first time in more than a decade that analysts at the firm lowered their rating.

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