Honeywell’s Separation of Its Aerospace and Automation Businesses Should Unlock Substantial Value

In our view, Honeywell is one of the stronger multi-industry firms in operation today. Its underlying strategy is similar in each end market: to embed its own products into the operations of customers from which recurring revenue can be generated through aftermarket servicing. We predicate our long-term thesis on secular demand for warehouse automation, data analytics in power plants, remote security management, energy savings in buildings, and the broader commercial aerospace recovery. Over the next five years, we think Honeywell is capable of mid-single-digit organic top-line growth, incremental segment operating margins in the high 20s to low 30s, near-double-digit earnings per share growth, and free cash flow margins in the mid-teens.