Recently, Honeywell International Inc. announced that it might sell or split off its aerospace unit. This comes at a good time for the aerospace and defense industries, as well as for civilian air carriers, who are adding more room.
One of the most well-known shareholder critics, Elliott Management, praised Honeywell’s HON +3.13% move. Elliott Management is known for being tough on company management.
Early this morning, Honeywell’s stock went up 2.1%, which shows that Wall Street thinks the company is making the right move by considering separating its aerospace business. The aerospace business saw its organic sales rise 10% in the third quarter, to just under $4 billion, and growth is expected to be in the mid- to high-single-digit range.
Honeywell’s move comes just a few days after it announced a $17 billion deal to work with Bombardier BBD.B -0.56% to provide technology for satellite communications, propulsion, and electronics.
Elliott Management has said that it has invested $5 billion in Honeywell. The company said that Honeywell’s possible split of its aerospace business would fit with a plan it made about four weeks ago to make money.
The future for aerospace suppliers looks better now than it has in decades, Elliott wrote in a letter to Honeywell last month. The letter praised Honeywell’s aerospace business’s operating profit margins as being second only to Transdigm TDG +0.98% in the industry.
The International Air Transport Association (IATA) says that the world’s 340 airlines will make more than $1 trillion in sales for the first time next year. This is due to a growth rate of 4.4% in 2025, which is faster than the 6.2% growth rate expected for the whole year of 2024.
Precedence Research says the global aircraft market will grow by 7.8% each year and reach $791.8 billion in 2034, up from $373.6 billion in 2024.
Even though there are good possibilities, defense stocks like Honeywell have been falling behind the market as a whole. This is because of competition, problems with the supply chain, and inflation-driven price increases in wages and materials.
The S&P 500 has gone up by 26.9% this year, while Honeywell’s stock has gone up 8.5%. This year, Northrop Grumman Corp. (NOC +0.22%) is up 2.5% and General Dynamics Corp. (GD +1.52%) is up only 1.3%. One company whose stock is up about 40% is RTX Corp. RTX +0.25%, which used to be Raytheon.
The stock price of Boeing Co. BA -0.40% is down 34.9% because the company had trouble making planes like the 737 MAX safe.
Even though stocks have been at best mixed, space travel is still going strong. Elon Musk’s SpaceX is planning more missions, and other countries are sending probes to the moon.
In the past month, Elliott said that Honeywell’s stock research analysts “have written at length about the possible benefits of a separation” of its aerospace unit.
